Abstract

The present study aims at finding out the interaction between Banks’s Assets Quality and Macroeconomic Variables of public and private sector commercial banks in India. Banks Assets Quality is measured through the level of Non-Performing Assets. It specifically analyses the causality and statistically significant association between NPA and macroeconomic factors for the period 2003-2014. The study has applied various econometric tools such as unit root test, Granger Causality test, and Auto Regressive Hetroscedasticity Model. To analyse the NPA of commercial banks, the researchers have taken GNPA Ratio as proxy. The empirical results of ARCH model exhibited that macroeconomic variables such as inflation, credit growth, deposits growth, unemployment rate, weighted average lending rate and exchange rate are having statistically significant association with GNPA Ratios of commercial banks. Based on the analysis, it is inferred that exogenous variables such as GDP, inflation, credit growth and Exchange Rate are having unilateral relationship with GNPA whereas variables like Index of Industrial Production, Unemployment Rate and Weighted Average Lending Rate are having bivariate grange causal relationship with GNPA of Public and Private Sector Commercial Banks.