Sustainability of Financial Soundness of Banks: An Evidence Form Public and Private Sector Banks

Abstract

The banking sector plays a vital role in the growth and development of the economy of any nation. Nowadays, NPAs are great challenges for banks and harm profitability, and financial soundness, and hinder the operational activities of the banks. The Non-Performing Assets (NPAs) refer to the loans and advances of which payment of interest or principal amount is delayed, or missed as per the bank’s schedule. The purpose of the study is to find out the comparative financial soundness of the leading Indian public and private banks to get the hedging factors against the NPAs. Possibly, the hedging factors against the NPAs will be helpful to control and reduce the level of NPAs in Indian banks. Financial ratios are the base to measure financial soundness. The graphical presentation and ANOVA (Analysis of Variance) were applied to get the comparative growth trend and disparity among the financial soundness measures of the leading Indian private and public sector banks. The analysis reveals that there is a significant difference in the financial soundness of leading Indian private and public sector banks. The NIM (net interest margin) of leading Indian public sectors is significantly different and the public banks with higher NIM utilize their profitability to write off their NPAs. Based on the study is advised to enhance the CASA (current account and saving account to total deposits) for hedging against NPAs and the profitability in public sector banks.