Impact of Non-Performing Assets over Bootstrapped Efficiency of Banks: Analysis of Indian Domestic Banks

Abstract

The present paper examines the possible impact of Non-Performing Assets (NPAs) on the efficiency estimates of banks. The bootstrapped efficiency scores of 44 domestic banks of India have been examined over a period of 12 years from 2010–11 to 2021–22. The results indicate that public-sector banks performed well in the efficiency aspect as compared to private-sector banks. The Wilcoxon signed-rank test discerned that there is a significant impact of NPAs over the efficiency estimates. The results divulge that non-consideration of NPAs leads to underestimation of the efficiency of banks. The results are expected to be fruitful for policymakers, regulators, banks, and researchers. The inference is very crucial for researchers as well as regulators while comparing the efficiency of public and private sector banks because public sector banks seriously suffer from the problem of mounting NPAs. The comparison of efficiency scores in different years unveils the strong relationship of efficiency estimates with money deposited into banks and the amount lent by banks. The outcomes of the study hold significant potential for policymakers, regulators, and banks alike, as they seek to get a comprehensive understanding of the intricate dynamics surrounding lending, deposits, and the overall efficiency of banking institutions. Further, since the impact of not including NPAs was found to be worse on managerial efficiency, the managers have to make rational use of banking inputs in order to maximise outputs. The study is likely to be a useful reference for researchers interested in researching various aspects of efficiency.