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

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Macro Stress Testing of Indian Banking System Focused on the Tails

This paper investigates system-wide macro stress testing for credit risk. This paper uses two multivariate regressions, namely, ordinary least square and quantile regression to establish a stochastic relationship between credit quality indicators such as the non-performing advances ratio or the slippage ratio and macro-variables. This paper confirms that a slowdown in the economy along with a firming-up of the interest rate structure is likely to have an adverse impact on the performance of the banking sector in terms of the slippage ratio.

The views expressed in the paper are the authors’ own and not of the institution to which they belong. This paper was presented in the 49th annual conference of The Indian Econometric Society held at Patna University, Patna, Bihar in January 2013.

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