Internal Determinants of Banks and Asset Portfolio Quality during Covid-19 Pandemic: An Analysis

Abstract

The Covid-19 pandemic has resulted in an economic turmoil of unprecedented proportions at a global level. The numerous government backed lockdowns led to many industries closing completely due to mounting financial losses and movement of migrant labour. In India too, industrial activity declined, factories shutdown and people lost their sources of income. The major impact of these southward movements was a dip in credit growth and upswing in non-performing assets in banking industry. With this backdrop, this study attempts to comprehend the reasons for borrowers default and rise in delinquencies. Data has been collected from 322 respondents through a structured questionnaire and analyzed using multivariate analysis. The study inferred that customers defaulted in repaying their dues mainly on account of external economic reasons. Their inability to repay coupled with need for additional funds to restart businesses is a double edged sword impacting borrowers’ intentions. Often ignored, internal bank-specific causes also marginally contribute towards creation of non-performing assets. Currently economy and borrower related motives are beyond the control of banks. As such the study suggested that if banks could exercise extra caution, provide satisfactory, speedy, timely service and pass on all possible benefits to the borrowers, bad debts may not mount and quality of asset portfolios may remain optimized.