A unique way of categorising non-per- forming loans (NPLs) of Indian banks is as “wilful defaults” and “others”. Wil- ful defaulters are borrowers who are unwilling to repay their debt obliga- tions despite having the capacity to pay back the loan. This paper is motivated by Breuer (2006) that a country’s social infrastructure – legal, political, socio- logical and economic institutions – may influence the behaviour played out in any principal-agent relationship, including banking relationships. Thus, an increase in NPLs is related to a higher degree of corruption, degree of ethnic heterogeneity, restrictions on wage and price controls, and restric- tions on banks’ participation in real estate activities (Breuer, 2006).
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