What the study found
Currency depreciation was associated with higher non-performing assets (NPAs), which are loans that are not being repaid as expected, in the Indian banks studied. Inflation and tighter monetary policy were found to have a moderating effect, while GDP growth did not show a significant influence.
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 provides clearer and more consistent insights for policy and banking practice.
What the researchers tested
The study used annual panel data from 30 Indian banks covering 2003–2022. It applied Robust Least Squares and dynamic modelling techniques to examine GDP growth, inflation, exchange rate movements, and repo rates, while addressing heteroscedasticity, autocorrelation, and bank-level heterogeneity.
What worked and what didn't
The results consistently showed that currency depreciation significantly increases NPAs. Inflation and tighter monetary policy were associated with a moderating effect, but GDP growth did not have a significant effect on NPA levels. Stationarity tests were used to guide the inclusion of dynamic elements, and the adjusted model did not produce conflicting interpretations.
What to keep in mind
The abstract does not report specific limitations beyond the note that broader ideas such as institutional memory and balance-sheet effects were acknowledged for context but were not empirically tested. The findings are limited to the banks, variables, and period studied.
Key points
- Currency depreciation was linked to higher NPAs in the Indian banks studied.
- Inflation and tighter monetary policy showed a moderating effect on NPAs.
- GDP growth did not have a significant influence on NPA behaviour.
- The analysis used annual panel data from 30 Indian banks from 2003 to 2022.
- Broad ideas like institutional memory and balance-sheet effects were noted for context but not tested.
Disclosure
- Research title:
- Currency depreciation is linked to higher non-performing assets in Indian banks
- Authors:
- Faiz Ur Rehman, MA Ahsan, Bilal Asghar, Ali Saleh Alshebami, Elham Alzain, Abdullah Hamoud Ali Seraj
- Institutions:
- Aligarh Muslim University, Jubail Industrial College, King Faisal University, University of Business and Technology
- Publication date:
- 2026-04-07
- OpenAlex record:
- View
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