Indian Commercial Banks Research Articles

Elucidating the Non-Performing Assets in Indian Banking Sector: Does Macroeconomic Factor Matter?*

Using the system generalized methods of moments on panel data set of 45 selected Indian commercial banks from 2005–2006 to 2019–2020, the study investigates the determinants of non-performing assets (NPAs), taking into account macroeconomic and bank-specific factors. The study finds evidence of a persistent effect in stressed assets. The profitability ratio, operational capacity, cost efficiency and aggressive lending negatively and significantly affect the NPAs. The negative impact of the profitability ratio implies that less efficient banks are more exposed to bad loans. While cost efficiency discourages the NPAs, on the other hand, higher credit deposit ratio (operational capacity) suggests that a well-diversified portfolio leads to lesser probability of loan defaults. The probability of loan default is high when more advances are released to the economy’s weaker and vulnerable sectors (high-priority sector lending). Small-sized banks are more efficient in NPAs management than large-sized banks. Various macroeconomic variables, such as lending rates and credit growth in the banking industry, significantly affect the NPAs. The higher lending rate adversely affects borrowers’ repayment capacity, leading to more stressed assets. Therefore, to maintain bad assets within a bearable limit, policymakers should take macroeconomic determinants into consideration.

Financial Sustainability : The Influence of Internal Efficiency in Indian Commercial Banks

Financial Sustainability : The Influence of Internal Efficiency in Indian Commercial Banks

Analyzing the liquidity of commercial banks in India: Study on different bankgroups

The present study investigates how macroeconomic and bank-specific determinants affect the liquidity of public, private, and foreign banks in India. Bank liquidity is crucial for maintaining financial stability, supporting economic growth, and preserving public trust in the banking system. Bank liquidity is critically significant for bank success. Since 2008, this study has taken 49 banks for analysis purposes. We have employed the fixed and random effect models to examine the impact of bank-specific and macroeconomic variables on the liquidity of diverse bank groups. The results show that deposits and capital have a positive influence, whereas interest rate, statutory liquidity ratio, and cash reserve ratio negatively influence public, private, and foreign banks. Profitability has an insignificant effect on all types of banks. Gross domestic product has a positive, significant influence on public and private banks, but an insignificant impact on foreign banks. Bank size significantly impacts private banks, whereas it has negligible influence on other banks. The findings can assist bank managers, policymakers, and academics in formulating policies that maintain bank liquidity without incurring any losses or undefined costs. The present research is useful for other countries with a similar economic framework, like India, to improve their bank liquidity structure.

How Does Macroprudential Policy Impact Bank Risk-Taking and Profitability: Evidence from Indian Commercial Banks

ABSTRACT This study analyses the impact of macroprudential policy (MaPP) on Indian banks’ risk-taking and profitability. Using commercial bank data from 2004–05 to 2019–20, the risk-taking is measured by Z-score, and loan loss provision and profitability by return on average assets and return on average equity, respectively. Employing the panel system-GMM technique, the study finds. (1) MaPP mitigates bank risk-taking by enhancing the bank’s stability and reducing the procyclicality of loan loss provisions. (2) MaPP is found to have a positive impact on bank profitability. (3) MaPP is found to be more effective in the context of private and foreign banks as compared to nationalized banks. (4) Within the macroprudential toolkit, reserve requirements and risk-weights are found to have a positive impact on risk-taking and profitability, whereas provisioning requirements are found to have a negative impact.

Impact on Indian Commercial Banks

Impact on Indian Commercial Banks

Determinants of banking stability in India

Purpose This study aims to examine the various internal and external factors affecting the financial stability of Indian Commercial Banks. The aim is to improve the effectiveness of the Indian banking system in facilitating the transmission of monetary policy and to strengthen its resilience in the event of a banking crisis. Design/methodology/approach A panel data regression analysis is employed on unbalanced panel data of Indian commercial banks including public sector, private sector and foreign sector banks for the period of 2005–2022. Findings This study revealed that Indian banks with higher profits and high capitalization are more stable than others. However, banks with large bank size and high management costs are less stable as compared to other banks. In the case of macroeconomic variables, foreign exchange reserves have a significant positive impact on banking stability. Moreover, the unemployment rate has a significant negative impact on the banking stability of India. Research limitations/implications Research identifies relevant micro and macroeconomic drivers pertaining to India’s banking stability, a developing economy. These findings have significant implications and can attract the attention of analysts, regulators, bankers and academicians in this area. Nevertheless, the scope of the study is limited to the variables chosen to evaluate their contribution to banking stability, but other variables may influence Indian banking conditions. Practical implications Indian banks are advised by the research to place a high priority on profitability, capitalization and effective risk management. Customers and investors should choose banks with strong metrics. The priorities for policymakers should be preserving robust reserves and tackling unemployment with focused initiatives. Adopting digitalization can improve banks’ customer service and operational effectiveness, which is important for overcoming economic obstacles. These tactics provide doable measures to improve the resilience and stability of the banking industry in India and other emerging nations. Originality/value This research differentiates from the rest by focusing solely on the Indian banking system, in contrast to previous ones that often treated India as part of a bigger part like the BRICS or South Asia continent. It acknowledges the need to comprehending the unique traits and difficulties faced by the Indian banking system. Moreover, the current study distinguishes itself by focusing on the combined impact of microeconomic and macroeconomic indicators in the Indian context, unlike earlier research that concentrated on assessing the effects of individual variables. The current study also investigated new variables like corporate governance and foreign exchange reserves in the context of Indian banking which have not been explored by existing literature. Research is also crucial in the context of the analysis’s time frame, since it captures the period of economic transformation that included demonization, implementation of GST, major mergers and global COVID-19 pandemic.

An Empirical Study of Public and Private Sector Bank’s NPA for the Period of 2005-2021

One of the most significant and challenging issues affecting the entire banking industry in India is the problem of Non-Performing Assets (NPAs). The primary source of revenue for banks is the interest collected on the loans they extend. However, when banks lend money, they assume the risk of bad credit. This means that the bank is exposed to potential losses if the borrower fails to repay the loan. The conducted analysis addresses the long-standing issues and concerns associated with Non-Performing Assets (NPAs) in scheduled commercial banks in India. This paper aims to assess the efficiency of each scheduled commercial bank in India over the period from 2005 to 2021. It evaluates key indicators, including net profit, total assets, total liabilities, and total employment. The aim and objectives of this study are to evaluate the variables impacted by NPA for public sector and private sector banks in India, to identify the scheduled commercial banks' NPA management shortcomings. The methodology which has been implemented in this study descriptive and panel regression analysis. Results shows that the larger NPA is in private sector bank when compared to public sector bank.

How efficient are Indian banks? An application of stochastic frontier analysis

Purpose This study aims to investigate the efficiency of Indian commercial banks from 2002 to 2018 using the stochastic frontier analysis. Design/methodology/approach This study uses the parametric approach of the stochastic frontier to examine the technical efficiency of banks acknowledging exogenous shocks, omitted variables and measurement errors, filling a gap in the existing financial literature. The scope of this study was constrained to 71 scheduled commercial banks to make it manageable and productive with 1,036 observations. Findings The results show that the mean technical efficiency of new private banks remained constant at 92.7% during the study period because of technology diffusion in banking systems. The technical efficiency of the nationalized, old private and foreign banks has enhanced over the period because of the efficient utilization of various innovative information technology services such as mobile banking, cheque truncation system, magnetic ink character recognition. However, the foreign banks are still laggards with a mean technical efficiency of 81.7%. The empirical findings suggest that new private sector banks depict higher efficiency than nationalized, old private and foreign banks. Research limitations/implications This study’s sample represents all categories of banks (public, private and foreign) including the banks that merged or consolidated during the period of study. To achieve the desired results, the authors incorporate the consolidated and merged banks in their data set. Further, the authors excluded all scheduled small finance banks and scheduled payment banks from their analysis, as these entities commenced operations post-2015. Additionally, the authors also excluded regional rural banks because of their distinct mandate aimed at servicing the rural populace and agricultural sector. Originality/value This study contributes to the literature on the performance of conventional banks in general and emerging markets, in particular, using the most recent data and covering a relatively long period using the stochastic frontier approach.

Analyzing the Financial Performance of Commercial Banks in India: Camel Model on YES Bank & SBI And Lakshmi Vilas Bank & DBS Bank India Ltd.

Analyzing the Financial Performance of Commercial Banks in India: Camel Model on YES Bank & SBI And Lakshmi Vilas Bank & DBS Bank India Ltd.

Impact of board gender diversity on performance of public sector vis-à-vis private sector banks in India

PurposeThe Companies Act of 2013 stressed upon gender diversity in the board of management considering the significant role of women toward the success of an organization. Following it, both public and private sector banks in India implemented the act from 2015 onward. This study aims to investigate whether its implementation has improved board gender diversity uniformly across public and private sector banks. Furthermore, the authors study the impact of board gender diversity on the performance of public and private sector banks in India.Design/methodology/approachSecondary data on listed Indian commercial banks for the period 2015–2021 have been used in this study that encompasses 15 commercial and 12 public sector banks. Return on assets, return on equity and Tobin’s Q are considered as the banking performance indicators in this study, while gender diversity of the board is measured by using Blau index. Furthermore, generalized method of moments has been adopted to analyze the effect of board gender diversity on performance of the Indian banking sector.FindingsEmpirical results exhibit that board gender diversity has been gradually improving since 2015 in both public and private sector banks in India. However, board diversity in case of public sector banks is seen to be lower than that of private sector banks. Furthermore, this study found a significant impact of board diversity on the performance indicators of both public and private sector banks.Practical implicationsThis study gives a clear picture that board diversity of both public and private banks has remained quite low over the years. Apparently, women representation has been found to be less than 50% throughout the period of 2015–2021. As board diversity has significant impact on banking performance, it is important on the part of banks to take proper steps to improve the board diversity.Originality/valueThis study has added to the existing literature by highlighting on the divergence between gender diversity across public and private sector banks in India. It emphasizes on the need to improve gender diversity by a significant increase in the proportion of women in the board to create an impact on decision-making.

Measuring Impact of CAMELS Model on Financial Performance of Indian Commercial Banks

The purpose of this study is to examine the effects of CAMELS components on the financial performance of Indian commercial banks. To fulfill the objectives of the study,secondary data were collectedfor the fiscal year 2016 to 2021 from four public sector and four private sector banks based on their market capitalization. To analyse the data two econometric models are constructed using return on assets (ROA) and return on equity (ROE) as proxies for commercial banks’ financial performance as dependent variables and six CAMELS’s key indicators (capital adequacy, asset quality, management efficiency, earning quality, liquidity, and sensitivity to market risk)as independent variables. To determine the extent to which the independent variables have an effect on the dependent variable, panel ordinal least square regression with their assumption has been used. The findings of the study revealed that the financial performance of Indian banking sector as evaluated by ROA and ROE is statistically and significantly affected by capital adequacy, liquidity and sensitivity to market risk, whereas asset quality, managerial efficiency and earning quality is found to have insignificant impact on the financial performance of Indian commercial banks. In order to perform better, it is suggested that the commercial banks should focus more on the variables that have a substantial impact on their financial performance. Keywords: Random effect, ROA, ROE, liquidity, sensitivity to market risk, CAMELS.

Market power and bank risks: insights from India and Bangladesh

PurposeThis study aims to investigate whether various types of risks faced by the publicly listed commercial banks of India and Bangladesh are driven by market power and provides comparative insights from both economies.Design/methodology/approachBy using the adjusted Lerner index to gauge bank market power and applying the generalised methods of moments (GMM) regression approach, the research delved into the relationship between bank market power and three distinct facets of risk across a sample of 26 publicly listed commercial banks in India and 22 listed banks in Bangladesh spanning from 2011 to 2022.FindingsThe results indicate that for Bangladesh, both “competition fragility” and “competition stability” viewpoints coexist simultaneously across all risk types, supporting a nonlinear relationship between market power and risk. However, in the Indian context, a nonlinear association exists only in the case of credit risk, while the relationship with insolvency risk is linear, substantiating the “competition fragility view”. Apart from market power and bank-specific variables, GDP growth rate has emerged as a prominent driver across all risk categories in both countries.Research limitations/implicationsThe filtration of banks is a limitation that might have influenced the outcomes. This study recommends that the Reserve Bank of India encourages further bank consolidation. Along the same line, Bangladesh Bank should closely oversee the growing competitive landscape. Furthermore, the regulators must monitor the elevated levels of non-performing loans to reduce credit risk so as to bolster the stability of their respective banking sectors.Originality/valueThis comparative study is the first attempt to analyse the market power and risk relationship and includes a novel bank-specific variable, i.e. technology, apart from other established variables.

A Study on Risk Management and Performance Analysis of Commercial Banks in India: (Application of Camel Model)

There are various financial tools and techniques to measure the performance of the banks, one of the most important one being the CAMEL model which lays emphasis on all the aspects of the performance measurement. The present study analyses the performance of selected nationalized banks in India.

Determinant of Probability of Indian Listed Commercial Bank

This study investigates the determinants of profitability among commercial banks in India over the period from 1999 to 2022, utilizing unbalanced panel data comprising 108 banks. By examining both internal bank-specific characteristics and external macroeconomic factors, we assess how these variables impact profitability across different types of banks. Our findings suggest that liquidity conditions, as measured by the loan-to-asset ratio, do not significantly affect profitability. However, credit risk, represented by the ratio of loan loss provisions to total loans, demonstrates a positive relationship with profitability for foreign and private banks. Diversification has conflicting effects on profitability, with SBI & Associates banks and public banks benefiting from it, while new private banks experience negative impacts. The influence of overhead costs on profitability varies across bank types, positively impacting return on equity for all banks and foreign banks, but negatively affecting return on equity for public banks. Conversely, it positively impacts return on assets for all banks but negatively impacts return on assets for private banks. Capital strength exhibits a negative association with profitability across all banks and a positive association for public banks, with inconclusive results for private banks. Bank size does not show a significant relationship with profitability across all bank types. Regarding macroeconomic factors, while indicators like money supply growth and inflation do not significantly impact return on equity, they positively influence return on assets, albeit with variations across ownership types. In conclusion, this study highlights the complexity of factors influencing bank profitability in India and underscores the importance of tailored management strategies to navigate these complexities effectively.

Transformative Waves: Impact of Information Technology on Operations of Commercial Banks in India

This research abstract provides a glimpse into a study focused on investigating the profound impact of Information Technology (IT) on the operations of commercial banks in India. Employing a mixed-methods approach, incorporating qualitative insights and quantitative analyses, this study aims to explore the multifaceted dimensions of IT integration, its challenges, and the resultant transformation in the operational landscape of Indian commercial banks. The qualitative aspect of the study involves interviews, case studies, and expert opinions to capture nuanced perspectives on how IT adoption has reshaped banking operations in India. Simultaneously, quantitative data will be analyzed to identify trends, correlations, and statistical patterns associated with the impact of IT on key operational metrics. Various dimensions of the impact of IT on banking operations will be investigated, including enhanced efficiency through automation, the evolution of digital banking channels, cybersecurity challenges, and the overall influence on customer experience. The study aims to provide insights into the strategic implications of IT integration for commercial banks in India.
 The findings from this research are anticipated to offer valuable insights for banking professionals, IT experts, policymakers, and decision-makers. By understanding the multifaceted impact of IT on operations, stakeholders can formulate strategies to harness technological advancements, address challenges, and contribute to the ongoing digital transformation of the banking sector in India. This study serves as a foundation for informed decision-making and future research within the realm of its impact on the operations of commercial banks.

The moderating role of IT governance on the relationship between FinTech and sustainability performance

The main aim of this study is to investigate the moderating effect of Information Technology governance on the relationship between the use of Financial Technologies and sustainability performance. The study used non-probability convenience and snowballing sampling approaches to collect data. The study collects a sample of 210 respondents targeting bankers in various positions from the Indian commercial banks. The study used structural equation modeling to estimate the results. The findings highlight the complex links between IT governance, FinTech, and sustainability-related concerns, emphasizing the importance of a comprehensive approach to sustainability. Banks can establish more complete strategies for sustainable growth by considering IT governance, FinTech, and ESG factors. The findings reveal that IT governance is critical in shaping banks’ strategic planning towards sustainable activities, evolution of Fintech, and technological advancements, which in turn influence significantly and positively sustainability performance. IT governance leads to increased adoption of Fintech and enhances sustainability performance, contributing to the growth of economic sustainability. Banks that strategically utilize IT governance to foster Fintech and sustainability performance improvements likely experience economic gains due to their focus on sustainable and technologically driven practices. The findings emphasize the importance of balancing sustainability efforts and suggest that banks that embrace IT governance while emphasizing ESG factors are more likely to embrace better sustainability performance. The findings offer advice for bankers and policymakers on how to strategically utilize technology to improve sustainability and economic performance while considering potential trade-offs.

Priority and non-priority sector GNPAS in Indian commercial banks: a comparison between sub-sectors

Purpose This study aims to examine the impact and contribution of priority and non-priority sectors, as well as their sub-sectors, on the gross non-performing assets of public, private and foreign sector banks. Design/methodology/approach The Reserve Bank of India's database on the Indian economy is used to retrieve data over 13 years (2008–2021). Public sector (12), private sector (22) and foreign sector (44) banks are represented in the sample. Two-way ANOVA, multiple regression and panel regression statistical techniques are used in SPSS and EViews to examine the data. Further, the results are also validated by using robustness testing by applying the fully modified ordinary least square (FMOLS) and dynamic least square (DOLS) regression. Findings The results showed that, for private and foreign banks, the non-priority sector makes up the majority of the total gross non-performing assets, although both the priority and non-priority sectors are substantial for public sector banks. The largest contributors to the total gross non-performing assets in public, private and foreign banks are industries, agriculture and micro and small businesses. The FMOLS displays robustness results that are qualitatively similar to the baseline result. Practical implications Based on the study's findings about the patterns of non-performing assets originating from these specific industries, banks might improve the way in which these advanced loans are managed. Originality/value There has not been much research done on the subject of sub-sector-specific non-performing assets and how they affect total gross non-performing assets across the three sector banks. The study's primary focus will be on the issue of non-performing assets in the priority’s and non-priority’s sub-sectors, namely, agricultural, micro and small businesses, food credit, industries, services, retail loans and other priority and non-priority sectors.

Economic Value Added Break Even Point of Commercial Banks

Economic value added (EVA) is an estimate of a firm’s economic profit, or the value created in excess of the required return of the company’s shareholders. Economic Value Added is the net profit, less the equity cost of the firm capital. The idea is that value is created when the return of the firm’s economic capital employed exceeds the cost of the capital. The amount can be determined by making adjustments to Generally Accepted Accounting Principle accounting. This article aims to measure the Economic Value Added breakeven point of commercial banks in India.

An empirical study of usage of interest rate swaps among Indian mid-cap corporates

PurposeInterest rate derivatives (IRDs) are the essential components of financial risk management and are used across various industry sectors. The objective is to analyze the differences in approach to managing interest rate risks between the Indian corporates that execute IRDs and the ones that do not.Design/methodology/approachInterest rate fluctuations require Indian corporates to hedge their exposures in foreign currency interest rates. This is all the more true for mid-sized corporates because of their balance sheet exposures. Additionally, they may not have the resources to formulate risk management policies. This paper analyzes data collected from financial statements of a diverse set of companies that use IRD and helps in formulating such a strategy.FindingsThe results indicate significant differences for some of the parameters like information asymmetry and agency cost between users and non-users of IRDs. The study further suggests causality between users of derivatives and parameters like size, growth and debt.Research limitations/implicationsThe study compares users and non-users of IRDs, thereby identifying factors unique to users of IRDs. It also studies causality relations which explain the motivation to do IRDs. Thus, it enables risk managers to use this as a reference point to decide on their strategies.Originality/valueWhile there are multiple studies across geographies and sectors including commercial banks in India on the usage of interest rate swaps, this study focuses on Indian mid-tier corporates. Furthermore, the study distinguishes between users and non-users based on financial parameters, which in turn would provide a framework for decision-hedging strategies.

Comparative financial performance analysis of commercial banks in India

Commercial banks are financial institutions that perform the functions of accepting deposits from the general public and giving loans for investment with the aim of earning profit. These banks play a key role in the growth and development of an economy. In India, commercial banks are broadly classified into public sector commercial banks, private sector commercial banks, and foreign commercial banks. In the present study, the researchers have made an attempt to examine the financial performance analysis of public sector and private sector commercial banks in India. The study covers the top five public sector commercial banks and the top five private sector commercial banks. The study is based on secondary data extracted from books, journals, financial statements of the banks under study, and other websites. The study period is 5 years—from March 2019 to March 2023. Financial performance and Market capitalization parameters along with key banking ratios were used for the analysis and ajudgmental sampling technique was used for selecting the sample.