NPA variations across Indian commercial banks - Some findings

The Indian commercial banking sector is characterised by both a high averag e non-performing share in total bank advances and a high dispersion between banks. This paper presents the findings of a formal attempt to explain int er-bank variations in NPAs for the year 1996-97. The specification tests fo r the impact of region of operation on domestically-owned banks, as measure d by percentage branches in each of a set of state clusters. One cluster of three eastern and seven north-eastern states carries a robust and statisti cally significant positive coefficient; another cluster of the southern and some of the northern states carries a significantly negative coefficient. These findings bear out those of Demirguc-Kunt and Huizinga on the signific ance of the operating environment for bank efficiency. No sustainable impro vement in the performing efficiency of domestic banks is possible without p rior improvement in the enforcement environment in difficult regions of the country. Another finding of some importance is that it is not foreign owne rship in and of itself so much as the banking efficiency and technology cor relates of the country of origin of the foreign bank which determine NPA pe rformance in the Indian environment.