Academy of Strategic Management Journal (Print ISSN: 1544-1458; Online ISSN: 1939-6104)


Impact of Financial Variables and Corporate Governance Variables on Loan Loss Provision in Indian Public & Private Sector Banks

Author(s): Radhakrishna G.S, Desti Kannaiah, Senthil B Arasu, Thotapalli Sahithi, Vahid Biglari

According to the RBI report published in June 2019, loan loss provision rose sharply to 60.6 per cent in March 2019 from 52.4 per cent in September 2018 and 48.3 per cent in March 2018. This study thus measures the impact of financial and corporate governance variables on loan loss provision in Indian public and private sector banks. We used data from 20 banks which include 10 private and 10 public sector banks for 5 years (20 quarters) from 2015 to 2019. Our findings reveal that financial variables of Market to Book Ratio (MBR) and Shareholders influence have a negative influence on loan loss provision in both yearly and quarterly data. Whereas, paid-up equity capital has positive effect on loan loss provision, current and savings account ratios have a positive influence when quarterly data is considered. Management efficiency has positive influence on loan loss provision (yearly data) but has no significant impact on LLP for quarterly data. The presence of corporate governance variables such as independent directors, board of directors, bank size and non-independent directors have no significant impact on loan loss provision. The results are important for policymakers and users of accounting information.

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