ABCD Bank: In search of factors affecting its interest income

Abstract

ABCD bank, one of the leading private banks in the country, had tried to take advantage of the changes made in the monetary policy of Reserve Bank of India (RBI) during the peak of the Covid-19 pandemic to provide more credit. However, with the world slowly returning to normalcy, and RBI trying to rein in inflation by imposing a more hawkish stance, the monetary policy is expected to return to pre-pandemic levels. Importantly, the consumers and corporates who had taken advantage of the situation to get loans at cheaper rates to start a project or business, might not have been successful in their respective work or ventures to repay the loans as desired. The banking industry feared that this could result in massive defaults, leading to a stupendous rise in Non-Performing Assets (NPA). To add to this, the ongoing war between Russia and Ukraine might further aggravate the NPA situation, because of major disruptions in sourcing various types of raw materials from Ukraine by India. Given this backdrop, ABCD bank assigned Arun the task of figuring out how much NPA of the bank and macroeconomic conditions in India are responsible for ABCD bank's interest income, all in effort to soothe the nerves of the shareholders in near future. What kind of analysis should Arun adopt? What inference should he draw from the numerical results of his analysis?