Impact of corporate governance on non-performing loans in Indian banking sector.

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Authors
Jain, Chhavi
Issue Date
2019
Degree
MSc International Accounting and Finance
Publisher
Dublin Business School
Rights
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Abstract
The aim of the current research is to study how Non performing Loans of Indian banks are influenced by the overall corporate governance structure of the organisation. To achieve this the primary part of the research focussed on interviewing the bank officials who are working in public and private sector banks and are involved in making the lending decisions. The data collected through semi-structured questionnaire was analysed thematically using Grounded Theory Method. The data was coded and various themes were recognized which examined various factors which influence the decision making process by the top management. These factors were performance management, risk management , audit, internal control and monitoring. These are the various components of corporate governance which have an impact on the credit risk of the banks. It was fond that it is the primary responsibility of the Top Management to establish firms’ risk appetite and timely review firm’s risk portfolio. Further management has to make sure that the employees are apprised of the firm’s risk culture. (Pinar Evrim, 2012, pg. 47). Banks having proper corporate governance structures in which employees are also given say and encouraged to participate can avoid fines and protect themselves from financial risk associated with misconduct. Strong risk culture which is incorporated in the overall processes can help in preservation of financial solvency and stability of operations in reference to the Indian banks. As the top Management is elected and reports to the Board of Directors it is crucial to examine their role in corporate governance process as well. To understand what factors guide the board of directors to effectively make key decisions like setting strategy , formulation of high-level objectives and broad based resource allocation the researcher further examines the effect of corporate governance measured by (Board Size, Ownership Concertation, Board Independence and separation of Chairman and CEO) on the non-preforming loans of Indian banking Industry for a period of 2014-2018 through multiple regression . Research indicates high percent in Ownership Concentration for public sector banks results in higher non-preforming loans. In case of private sector the relation is negative which means low percentage in ownership concertation leads to decrease in non-performing loans and further separation of CEO and Chairman also leads to lower non-performing loans. (Muhammad Ishfaq Ahmad ,etc., 2016,pp.39).