What the study found
The study found that currency depreciation is associated with higher non-performing assets (NPAs, loans that are not being repaid) in Indian banks. It also found that inflation and tighter monetary policy appear to moderate NPA levels, while GDP growth does not show a significant effect.
Why the authors say this matters
The authors conclude that conventional macroeconomic variables play a meaningful, though selective, role in explaining NPA behaviour. They suggest this offers clearer and more consistent insights for policy and banking practice.
What the researchers tested
The researchers analyzed annual panel data from 30 Indian banks covering 2003 to 2022. They used Robust Least Squares and dynamic modelling techniques to examine GDP growth, inflation, exchange rate movements, and repo rates while accounting for heteroscedasticity, autocorrelation, and bank-level differences.
What worked and what didn't
Currency depreciation significantly increased NPAs in the analysis. Inflation and tighter monetary policy were linked to a moderating effect, while GDP growth did not have a significant influence. The abstract says the results remained consistent after the model was adjusted using stationarity tests and dynamic elements.
What to keep in mind
The abstract does not report detailed limitations beyond noting that broader ideas such as institutional memory and balance-sheet effects were acknowledged but not tested. The findings are limited to the sample of 30 Indian banks and the 2003–2022 period.
Key points
- Currency depreciation was found to significantly increase NPAs.
- Inflation and tighter monetary policy showed a moderating effect on NPAs.
- GDP growth did not have a significant effect on NPA levels.
- The study used annual data from 30 Indian banks from 2003 to 2022.
- Robust Least Squares and dynamic modelling were used to address statistical issues and bank-level heterogeneity.
Disclosure
- Research title:
- India bank NPAs are linked to currency depreciation and policy tightening
- Authors:
- Faiz Ur Rehman, MA Ahsan, Bilal Asghar, Ali Saleh Alshebami, Elham Alzain, Abdullah Hamoud Ali Seraj
- Institutions:
- Aligarh Muslim University, Aligarh Muslim University, Jubail Industrial College, King Faisal University, King Faisal University, King Faisal University, University of Business and Technology
- Publication date:
- 2026-04-07
- OpenAlex record:
- View
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