Macro Stress Testing of Indian Banking System Focused on the Tails

This paper investigates system-wide macro stress testing for credit risk. This paper uses two multivariate regressions, namely, ordinary least square and quantile regression to establish a stochastic relationship between credit quality indicators such as the non-performing advances ratio or the slippage ratio and macro-variables. This paper confirms that a slowdown in the economy along with a firming-up of the interest rate structure is likely to have an adverse impact on the performance of the banking sector in terms of the slippage ratio.

read more