Loan Loss Provisioning Practices of Indian Banks

Abstract: The study for the period from 2007 up to 2023 explores the loan loss provisioning practices of Indian banks. It examines the procyclical/countercyclical nature of provisioning by Indian banks and tests whether provisioning in Indian banks has been influenced by the management of capital or/and earnings. Loan loss provisioning is taken as the dependent variable while the real gross domestic product, capital adequacy ratio, and earnings before taxes & provisions are taken as the explanatory variables. Employing the Generalized Method of Moments, findings suggest the loan loss provisioning to be procyclical and used by banks for capital and earnings management.  Keywords: Loan Loss Provisioning, Procyclical, Capital, Earnings Management, Generalized Method of Moments  JEL Classification Number: G21, G28