Analysis of bank specific factors of non-performing assets of select commercial banks

Abstract

The purpose of the paper is to examine the relationship between Non-Performing Assets (NPAs) and certain bank-specific factors in select commercial banks. To evaluate the performance of banks, the Reserve Bank of India and credit rating agencies employ the CAMELS model, which stands for Capital Adequacy, Asset Quality, Management, Earning Capacity, Liquidity, and Sensitivity to risk. The bank specific variables that have been selected for the study represent each of these parameters. The financial data from 32 banks between 2017-2022 has been analyzed using the statistical technique of multiple linear regression to determine whether these same variables remained significant each year. It has been found that the selected variables are able to explain 72% or more variance in NPAs in different years. Net Interest Margin has been found to have a significant relationship with NPAs in most of the years that have been considered for the study. Apart from this, Capital Adequacy ratio has been found to be significant in four out of six years that have been considered for the study. The other variables that have been found significant are priority sector advances to total advances, credit deposit ratio, secured advances to total advances, business per employee, return on equity and ownership.