A Study on The Mediating Effect of GDP on Relationship Between Gross Advances And NPA Of Indian SCBS

Abstract

The study investigates the role of GDP as a mediating variable in explaining the relationship between gross advances and NPA of Indian Scheduled Commercial Banks with particular emphasis on SBI & Associates, Nationalized Banks and Public Sector Banks during the period 2000-01 to 2011-12. The study also investigates whether the effect of GDP as a mediating variable differs before (2000-01 2006-07) and after the financial crisis (2007-08 to 2011-12). NPA is explained using Gross NPA and Additions to NPA. The relationship of variables is explained using a linear regression equation with interaction effect. The findings of the study reveal that the interaction effect is highly significant in explaining the relationship between gross advances and NPA of the selected bank groups. A scatter diagram and trend line is used to determine effect of interaction before and after the crisis. The significance of interaction on credit risk may be utilized by regulatory authorities for effective management of NPA in Indian SCBs. For SBI& Associates, the interaction significantly varies before and after the financial crisis.

Keywords: NPA, Gross Advances, Intermediation effect, Regression test.