Determinants of Credit Risk in Indian State-owned Banks: An Empirical Investigatio

Abstract

The determinants of the credit risk of banks in emerging economies have received limited attention in the literature. Using advanced panel data techniques, the paper seeks to examine the factors affecting problem loans of Indian state-owned banks for the period 1994-2005, taking into account both macroeconomic and microeconomic variables. The findings reveal that at the macro level, GDP growth and at the bank level, real loan growth and bank size play an important role in influencing problem loans. The study performs certain robustness tests of the results and discusses several policy implications of the analysis.