ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Were Public Sector Banks Victimised through AQR?

An inadvertent consequence of asset quality review by the Reserve Bank of India is that it portrayed public sector banks as inefficient managers of the burgeoning non-performing asset crisis relative to their private sector peers. A study, which used panel data regression to investigate the NPAs of 46 scheduled commercial banks between 2007 and 2016, has explored the myth by adopting a strategic orientation perspective to look into the antecedent periods of high uncertainties and jolts, leading to the build-up of NPAs, the changes in banks’ strategic orientations, and their effects on provisioning and NPA reduction. But no evidence was found to support the myth and to suggest that banks, across ownership, are incrementally exposing their NPAs ex post, subject to provisioning ex ante and that a moderate approach during periods of high uncertainty is most effective in managing NPAs. The study questions the received wisdom regarding the nature of risk-free sovereign debts and their impact on the NPA problem.
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