Comprehensive Analysis of the Financial Performance of Indian Public Sector Banks

Abstract

Recently, the government consolidated numerous public sector banks. The basis for conducting this study is this. This article's goal is to pinpoint the variables that influence public sector bank performance in India as well as the connections between those variables and the performance of particular banks operated by the government. In this article, we will examine the financial information from all public sector commercial banks over an 11-year period (from 2009 to 2019). Both the system generalised method of moments (GMM) analysis and the canonical correlation analysis (CCA) have been used to analyse the effects of determinants on public sector bank performance assessment.. CAMEL, which stands for Capital Adequacy, Assets Quality, Management Efficiency, Earning, and Liquidity, has been used to assess performance. Several public sector banks have lately been consolidated by the government. The basis for conducting this study is this. This article's goal is to identify the variables that determine Indian public sector banks' performance as well as the connections between those variables and performance. In this study, we will examine the financial data from all public sector commercial banks over an 11-year period (from 2009 to 2019). Both the system generalised method of moments (GMM) analysis and canonical correlation analysis (CCA) have been employed to assess the influence of determinants on the performance measurement of public sector banks Performance has been assessed using the CAMEL framework, which stands for Capital Adequacy, Assets Quality, Management Efficiency, Earnings, and Liquidity. This framework is widely used to evaluate the financial system in India. For a number of reasons, the financial health of public sector banks (PSBs) is crucial.First and foremost, PSBs are essential in delivering financial services to the general population, particularly in rural and semi-urban areas where private banks might not be present. Therefore, the availability of financial services to a wide portion of the public has a direct impact on their financial health.Second, PSBs frequently serve as the primary lenders to important economic sectors like infrastructure, SMEs, and agriculture. As a result, their financial performance may have a big impact on how these industries grow and develop. Thirdly, PSBs frequently have government ownership and are subject to public scrutiny. As a result, one key indicator of their efficiency is their financial performance. Alternate Parameters taken as SBI, BOB, PNB, BOI, CANARA. Evaluation Parameter taken as The following financial performance indicators have been considered: net profit margin%, return on assets%, return on net worth%, interest income to total assets%, interest expenses to total assets%, and operating expenses to total. In August 2015, a target was set for PSBs to raise $110,000 crore from the markets by the years 2018-19. However, compared to this target, only Rs. 7,726 crore was raised between January 2015 and March 2017. Given the CCEA's assurance to prevent an excessive influx of banking equity issues in the market simultaneously, it appears impossible to achieve this goal by March 2019.DFS decided that additional capital injections will only be granted if specific PSBs met the performance standards stated in the MoUs with those PSBs (signed in February/March 2012). However, in practice, this was not done. According to Audit Report No. 28 of 2017 55, the MoU targets for some metrics decreased year over year while no specific targets were specified for others.