ÃÛÌÒTV

• Commodity Prices and Balance Sheet Crisis in Emerging Economies
• Structural Macro-Econometrics
• New Keynesian models
• Applied Econometrics

Currently, I am working on the link between commodity prices and the banking crisis. The research focuses on understanding the causes and consequences of non-performing assets (NPAs) in the Indian banking sector. Since public sector banks have declared significantly higher non-performing assets post assets quality review, a large part of the debate in India has centred around the bad practices and zombie lending by public sector banks as probable reasons. We argue that non-performing assets in the Indian banking sector are highly correlated with commodity prices and this has not received due attention. We find that a decline in commodity prices reduces the profitability of non-financial firms and leads to higher defaults. Thus, banks with higher exposure to commodity-sensitive sectors end up having higher non-performing assets post-commodity price crashes. Since public sector banks on average had higher exposure to commodity sensitive sectors in 2011, they ended up declaring a higher proportion of non-performing assets. Further, banks become capital-constrained due to a high level of non-performing assets and scarcity of capital, and hence these banks reduced lending post-commodity price crashes. These results help us in understanding the twin balance sheet crisis of the 2010s in India.