Impact of Repo Rate Changes on Indian Banking Sector’s NPA Ratio (2015–2023)- An Analytical Study

Impact of Repo Rate Changes on Indian Banking Sector's NPA Ratio (2015–2023)- An Analytical Study

Dr. Kiran Kumar M, Abhishek Raj, Gopika Manoj

1 Assistant Professor – Finance, 2 MBA Student of Finance, 3 MBA Student of Finance

Faculty of Management Studies, CMS Business School, Jain (Deemed-to-be University), Bengaluru, Karnataka – 560009

1 kiranm287@gmail.com, 2 abhishek_raj23@cms.ac.in, 3 gopika_manoj23@cms.ac.in

Abstract

This study examines the impact of changes in the Reserve Bank of India's (RBI) repo rate on the Non-Performing Asset (NPA) ratios of Indian Scheduled Commercial Banks (SCBs) during 2015–2023. The repo rate, a critical monetary policy tool, influences the cost of credit and overall economic liquidity. Through an analytical approach utilizing secondary data from RBI publications and peer-reviewed journals, the study explores how repo rate fluctuations affected asset quality, particularly the Gross NPA (GNPA) ratios of SCBs. Key findings indicate that a consistent decrease in the GNPA ratio, from 11.2% in 2018 to 3.7% in 2023, was observed alongside phased repo rate adjustments. These adjustments reflect improved monetary transmission mechanisms and better risk management within banks. Stress testing of macroeconomic factors reveals that policy rate changes have significantly influenced the GNPA ratios under varying economic conditions, highlighting the critical interplay between monetary policy and banking sector resilience. This research provides valuable insights for policymakers and banking institutions on maintaining financial stability in the face of evolving macroeconomic challenges.

Keywords

Repo Rate
Non-Performing Assets (NPA)
Scheduled Commercial Banks (SCBs)
Monetary Policy
Financial Stability
Banking Resilience