The document analyzes the financial performance of public sector banks in India over 30 years from 1991-2020. It uses a regression model to analyze the impact of credit-to-deposit ratio and gross non-performing assets on bank net profit. The results show that gross NPAs negatively impact net profit while credit-to-deposit ratio positively impacts net profit.
The document analyzes the financial performance of public sector banks in India over 30 years from 1991-2020. It uses a regression model to analyze the impact of credit-to-deposit ratio and gross non-performing assets on bank net profit. The results show that gross NPAs negatively impact net profit while credit-to-deposit ratio positively impacts net profit.
The document analyzes the financial performance of public sector banks in India over 30 years from 1991-2020. It uses a regression model to analyze the impact of credit-to-deposit ratio and gross non-performing assets on bank net profit. The results show that gross NPAs negatively impact net profit while credit-to-deposit ratio positively impacts net profit.
The document analyzes the financial performance of public sector banks in India over 30 years from 1991-2020. It uses a regression model to analyze the impact of credit-to-deposit ratio and gross non-performing assets on bank net profit. The results show that gross NPAs negatively impact net profit while credit-to-deposit ratio positively impacts net profit.
banks- with special reference to Net Profit” Mr. Ramraj Malav, Assistant Professor, P. P. Savani University, Kosamba, Gujarat. Ms. Nirali Kantharia, Assistant Professor, P. P. Savani University, Kosamba, Gujarat.
Abstract: Indian banking sector play an important role in economic growth of country. Non-Performing Assets adversely affect the health of banks. The term ‘NPAs’ first time introduced in economic reforms in 1991, since the reform Indian banking sector has gone through various economic transformation and there are different phases of NPAs. This paper examined financial performance analysis of public sector banks. Total 30 years of data were collected from different banks annual reports. In this study, financial performance will be analysed by using regression model. Net profit will be dependent variable and GNPA and CD ratio will be independent variable. Results of the study shows that GNPA and CD ratio are significant with Net profit. GNPA is negatively impacted on Net profit and CD ratio is positively impacted on Net profit. Keywords: CD ratio, financial performance. GNPA, Net Profit, Public sector bank
Introduction: The banking sector play critical role in economic growth and development of country. Indian banking system faced lots of difficulties since independence. In every phases of development, various challenges hit Indian financial system. Recently, COVID- 19 hit the whole world. In early 2020 it hit India and has badly affected the growth of various sectors. One of the major sector which affected by COVID-19 is Indian financial sector or Indian banking sector. Indian banking system which has already faced lots of problem because of mounting high NPAs, this pandemic create more difficulties. Global market recession and economic fall down of countries are expected to push up NPAs of banking sector. The economic growth in India is supported by a wide variety of banking institutions consisting of public sector and private sector banks. Co-operative banks, foreign sector banks RRBs and other Non- Banking Financial Companies also play vital role in providing credit facilities. Public sector banks are a major type of bank in India. Finance ministry, Government of India has held majority of stake i.e. more than 50%. Public sector banks have been merged by the government in last few years. Financial performance is process of measuring how effectively a company utilizes its assets from primary mode of business to raise incomes it also measure organizations whole financial health over a particular period of time.
Review of Literature: (Lotto, 2019) In his research paper, he examines factors affecting operating efficiency of 36 commercial banks. He used multiple regressions model for to estimate the results. According to his model, bank liquidity and capital adequacy affect positively to bank operating efficiency. (Thiagarajan, 2011), she tried to analyse profitability of private sector and public sector banks by using correlation analysis and multiple regression analysis. (Palani, 2019) He made his attempt to study financial performance analysis of HDFC bank. He used different ratios like profitability ratios, long term solvency ratios and short term solvency ratios. (Sutan Emir Hidayat & Muhamad Abduh, 2012), in their research paper, they found factors which impacted on banking performance by using multiple regression models. Return on Assets and
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Return on Shareholders’ equity were taken as dependent variable and leverage, loans, GDP; expenses etc. were taken as independent variables. (Altman, 1977), his mathematical model of Z-Score become well known tool for financial analysis. (Joshi, 2020), he presented his study with aim of financial performance analysis by using Altman’s Z-Score model. In his study he developed linear regression model, dependent variable was Altman’s Z-score and Non-Performing assets, Net Profit and Total assets were independent variables. The results found that a GNPA/total asset has inverse relationship with Altman’s Z-Score.
Research methodology: Objective: To analyse the Financial Performance of Public Sector banks. To study the impact of C-D ratio and NPAs on banks Net Profit.
Data collection: Source of Data: This project is purely based on secondary data. The data was collected from RBI website and EPW research foundation official website. The sample includes 30 years data of all Public Sector banks. Time duration: 1991-2020 (30 years) Statistical tools and technique: In this project, we use multiple regressions model to identify various independent variables influencing Bank Profit. For running multiple regression model EViews 11 Student Version is used. Dependent variable: Net Profit/loss during year Independent variables: C-D ratio Gross NPA. The relationship equation is shown below:
Profit/loss = a + β*C/D+ β*GNPA + eᵢ
Here: a = Intercept β = Unknown parameter eᵢ = The Error Term Profit/loss = Net profit or loss during year. The value of profit is taken after deducting interest and tax. C-D Ratio = Credit to Deposit ratio. GNPA = Gross Non-Performing Assets. NPA is one kind of loss for banking business. Hypothesis: H0: There is no significance impact of C-D ratio and gross NPA on Net Profit/Loss. H1: There is significance impact of C-D ratio and gross NPA on Net Profit/Loss.
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Data analysis Interpretation The given data of Net profit and loss are stationary at 1St difference. P value is less than 0.05. Thus, null hypothesis will be rejected. i.e. data is not unit root.
The given data of C-D Ratio
are stationary at 1St difference. P value is less than 0.05. Thus, null hypothesis will be rejected. i.e. data is not unit root.
The given data of GNPA are
stationary at 1St difference. P value is less than 0.05. Thus, null hypothesis will be rejected. i.e. data is not unit root.
Table (3) Multiple Regression model results:
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Interpretation: The regression results presented in table 2 show that bank net profit/loss is impacted by C-D ratio and gross NPA. Gross NPA: the results show that the relationship of bank Net Profit with Gross NPA is negative That means if Gross NPA increased then Net Profit will decrease. And if the level of Gross NPA reduced then Net profit will increase. P value is less than 0.05 and 0.01. Thus, it is significant at 1% and 5% level C-D ratio: Net profit and C-D ratio has direct or positive relationship. That mean if the C-D ratio increase then Net profit goes up and vice-versa. P value is less than 0.05 and 0.01. Thus, it is significant at 1% and 5% level. R- Squared value is 0.80 i.e. 80% and adjusted R-squared value is 0.785, i.e. 79%. It indicates that regression model is well fits to observed data. R- Square value is 0.80 that means 80% of data fit the regression model. The value of Durbin Watson test is 1.4 that means there is positive autocorrelation detected in the sample. F-statistics value also shows that the model is significant. Table (4) Serial correlation LM test:
Interpretation: The breusch-godfrey test is a test for autocorrelation in the errors in a regression model. Null hypothesis: No serial correlation at up to 2 lags. Here results show that P value is not significant at any level of significance. Thus, null hypothesis is accepted. That means there is no serial correlation found in observed data.
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Interpretation: ARCH: Autoregressive conditional Heteroskedasticity, this is used to analyse volatility. This test normally performed for removing the error from regression test results. Null hypothesis: Heteroskedasticity ARCH error. P value for Chi – Square is 0.4804 that means not significant at any level of significance. Thus, we accepted null hypothesis. Table (5) Regression result after removing heteroskedasticity error:
After Heteroskedasticity Test, the result of multiple regressions does not change more. Value of R- squares, F-statistics, and P-value and durbin-watson test are same. But now operating profit is not significant at 1% level, it is significant at only 5% level. R- Square value is 0.80 that means 80% of data fit the regression model.
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Limitation of Study: 1. Present study considers only public sector banks. 2. There are many factors which affect Net profit or Loss. But present study takes only two variables i.e. GNPA and C-D ratio. 3. This study take data on yearly basis, but monthly or quarterly data give more accurate results.
Results and Conclusion:
This project aimed at examining the factor influence to bank profit. The study period is 30 years i.e.1991 to 2020. This study consist only public sector banks. The finding of study reveals that Gross NPA affect net profit adversely. And Credit-Deposit Ratio (C-D Ratio) affect directly or positively. The multiple regression results show that the model is significant at 1%, 5% and 10% level of significance. R- Square value is 0.80 that means 80% of data fit the regression model. In Regression results, Durbin Watson test value is 1.4, which indicates positive autocorrelation in observed data. But in breusch-godfrey LM test which test the Autocorrelation in data is not significant. i.e. there is no auto correlation upto 2 lag. P – Value < 0.05 = Rejecting Null Hypothesis, at 5% level of significance. P – Value > 0.05 = Not able to reject Null Hypothesis, at 5% level of significance. Here, as the results show that all the P – Value are less than 0.05. Thus, null hypothesis is rejected. That means there is significance impact of C-D Ratio and Gross NPA on Net Profit/Loss of public sector bank.
References:
Altman, E. I. (1977). The Z-Score bankruptcy model: Past, Present and Future. Financial Crises, New York , 89-129. Joshi, M. K. (2020). FINANCIAL PERFORMANCE ANALYSIS OF SELECT INDIAN PUBLIC SECTOR BANKS USING ALTMAN'S Z-SCORE MODEL. JOURNAL OF BUSINESS MANAGEMENT STUDIES , 74-87. Lotto, J. (2019). Evaluation of factors influencing bank operating efficiency in Tanzanian banking sector. Cogent Economics & Finance , volume 7 issue 1. Palani, R. (2019). A STUDY ON FINANCIAL ANALYSIS AND PERFORMANCE OF HDFC BANK. Studia Rosenthaliana , XI (XI), 37-49. Sutan Emir Hidayat & Muhamad Abduh. (2012). Does Financial Crisis Give Impact on Bahrain Islamic Banking Performance? A panel Regression Analysis. International Journal of Economics and Finance , 04, 79-87. Thiagarajan, S. (2011). An Analysis of Determinants of Profitability in public and Private Sector Banks in India. The International Journal's Research Journal of Social Science & Management , 140-152, volume 01 no. 6.
