Loan - Loss Provisions in Indian Banks : An Appraisal of Institutional Attributes
DOI:
https://doi.org/10.17010/ijf/2017/v11i10/118771Keywords:
Indian Banks
, Banking Provision, Loan-Loss Provision, Loan-Loss Reserve, Financial Performance, NPA, Distressed Loans, Banking FailureG01
, G11, G21, G28Paper Submission Date
, January 8, 2017, Paper sent back for Revision, August 2, Paper Acceptance Date, August 18, 2017.Abstract
The financial systems of a nation, being the lifeline of its economy, are expected to have ample preparation to confront and mitigate any shock inherent in a market - driven business. Loan - loss provisioning is a systematic way of handling risks rationally, signaling managerial prudence. Banks across the globe follow a dynamic provision policy. Sometimes, a well - designed policy is not enough to safeguard the interests of all the stakeholders. One such prominent and time - honored modus operandi to face contingencies is the rate of provisioning to be set aside annually to meet any contingencies. The proposed study attempted to report the chronological trend in provision in Indian banks in the latest decade. Data for the study were collected from CMIE online database. Bank size and nature of ownership were considered to be the predictors of provision. The findings of our study revealed that the size of the banks influenced the rate of provisions set aside. The study also revealed a clear distinction among the banks ranked high on the basis of size than medium and low ranked banks. We also recognized the global economic downturn as an incontestable constituent to increase the percentage of provisions across all the sectors of the financial industry.Downloads
Downloads
Published
How to Cite
Issue
Section
References
Ahmed, A. S., Takeda, C., & Thomas, S. (1999). Banks loan-loss provisions: A reexamination of capital management, earning management and signaling effect. Journal of Accounting and Economics, 28 (1), 1 - 25.
ASSOCHAM-CRISIL. (2017). The Insolvency and Bankruptcy Code: Protecting Stakeholders, improving ‘ease of doing business’. Joint Report by Associated Chamber Commerce and Industry and CRISIL Limited. New Delhi: ASSOCHAM.
Balla, E., & McKenna, A. (2009). Dynamic provisioning: A counter cyclical tool for loan-loss reserves. Economic Quarterly, 95(4), 383 - 418.
Bougatef, K. (2016). How corruption affects loan portfolio quality in emerging markets ? Journal of Financial Crime, 23 (4), 796 - 785.
Brinkmeyer, H. (2015). Drivers of bank lending: New evidence from the crisis. Germany: Springer Gabler.
Bushman, R. M., & Williams, C. D. (2012). Accounting discretion, loan-loss provisioning, and discipline of banks’ risk-taking. Journal of Accounting and Economics, 54 (1), 1 -18.
Bushman, R. M., & Williams, C. D. (2015). Delayed expected loss recognition and the risk profile of banks. Journal of Accounting Research, 53 (3), 511 - 553.
CMIE. (n.d.). Economic outlook. Retrieved from https://economicoutlook.cmie.com/kommon/ bin/sr.php?kall=wreport&tabcode=001021010010020000&oporder=0
Curcio, D., Dyer, D., Gallo, A. G., & Gianfrancesco, I. (2014). Determinants of banks’ provisioning policies during crisis: Evidence from Chinese banking system. Managerial Finance, 40 (10), 987 - 1006.
Dhar, S., & Bakshi, A. (2015). Determinants of loan-losses of Indian Banks : A panel study. Journal of Asia Business Studies, 9 (1), 17 - 32.
Government of India, Ministry of Law and Justice. (2016). The insolvency and bankruptcy code, 2016. Retrieved from http://www.indiacode.nic.in/acts-in-pdf/2016/201631.pdf
Greenawalt, M. B., & Sinkey, J. F. (1988). Bank loan-loss provisions and the income - smoothing hypothesis: An empirical analysis, 1976-1984. Journal of Financial Services Research, 1(4), 301 - 318.
Hair, J. F., Black, W.C., Babin, B.J., Anderson, R.E., & Tatham, R.L. (2011). Multivariate data analysis. New Jersey : Prentice Hall.
Henderson, C. C. (1999). The economic performance of African-American owned banks: The role of loan-loss provisions. The American Economic Review, 89 (2), 372 - 736.
Hrishikes, B. (2014). Banking strategy, credit appraisal and lending decisions: A risk-return framework (2nd edn). New Delhi: Oxford University Press.
Kanagaretnam, K., Lobo, G. J., & Mathieu, R. (2003). Managerial Incentives for income smoothing through bank loan-loss provisions. Review of Quantitative Finance and Accounting, 20 (1), 63 - 80.
Kanagaretnam, K., Lobo, G. J., & Yang, D. H. (2004). Joint tests of signaling and income smoothing through bank loan-loss provisions. Contemporary Accounting Research, 21 (4), 843 - 884.
Khurana, A., & Singh, M. (2010). NPA management: A study of new private sector banks in India. Indian Journal of Finance, 4(9), 3 -13.
Laeven, L., Majnoni, G., Caprio, J., Honohan, P., Mishkin, R., & Promisel, L. (2003). Loan-loss provisioning and economic slowdown: Too much, too late? Journal of Financial Intermediation, 12 (2), 178 - 197.
Leventis, S., Dimitropoulos, P. E., & Anandarajan, A. (2012). Signaling by banks using loan-loss provisions : The case of the European Union. Journal of Economic Studies, 39 (5), 604 - 618.
Maji, S., & Hazarika, P. (2016). Does competition influence the financial soundness of banks? Evidence from the Indian banking sector. Indian Journal of Finance, 10(10), 27 - 41. doi:10.17010/ijf/2016/v10i10/102994
Makri, V. (2016). Towards an investigation of credit risk determinants in European countries. Accounting and Management Information System, 15(1), 27 - 57.
Malhotra, N.K., & Dash, S. (2011). Marketing research: An applied orientation. New Delhi : Pearson Education.
Nagaraju, T. (2014). An analysis of profitability and marketability efficiencies of Indian public and private banks. Indian Journal of Finance, 8(1), 15 - 28. doi:10.17010/ijf/2014/v8i1/71981
Packer, F., & Zhu, H. (2012). Loan-loss provisioning practices in Asian banks (BIS Working Papers No. 375). Bank for International Settlements. Retrieved from http://www.bis.org/publ/work375.pdf
Pillai, K. R. (2016). Temporal and institutional essence of non-performing assets in banks: An Indian scenario. A Paper presented at the International Conference on Contemporary Issues in Commerce, Management and Social Sciences, held in Malaysia on 22nd and 23rd July.
Reserve Bank of India. (2014). Report of the internal working group on implementation of counter-cyclical capital buffer. Reserve Bank of India. Retrieved from https://www.rbi.org.in/Scripts/PublicationReportDetails.aspx?UrlPage=&ID=797
Reserve Bank of India. (2015). Master circular on prudential norms on income recognition, asset classification and provisioning pertaining to advances, 1st July 2015. Reserve Bank of India. Retrieved from https://rbidocs.rbi.org.in/rdocs/notification/PDFs/101MC16B68A0EDCA9434CBC239741F5267329.PDF
Ruozi, R., & Ferrari, P. (2013). Liquidity risk management in banks: Economics and regulatory issues. New York: Springer.
Skala, D. (2009). Saving on a rainy day? Income smoothing and pro-cyclicality of loan-loss provisions in Central European banks. International Finance, 18 (1), 25 - 46.
Taktak, N. B., Zouari, S. B. S., & Boudriga, A. K. (2010). Do Islamic banks use loan-loss provisions to smooth their results? Journal of Islamic Accounting and Business Research, 1(2), 114 -127.
Wahlen, J. M. (1994). The nature of information in commercial bank loan-loss disclosures. The Accounting Review, 69 (3), 455 - 478.
Walter, J. R. (1991). Loan-loss reserves. Economic Review, 20 - 30. Retrieved from https://www.richmondfed.org/~/media/richmondfedorg/publications/research/economic _review/1991/pdf/er770402.pdf
Wernz, J. (2014). Bank management and control: Strategy, capital and risk management. New York : Springer.
