Academic journal article Academy of Accounting and Financial Studies Journal

Financial Performance of Private Commercial Banks in India: Multiple Regression Analysis

Academic journal article Academy of Accounting and Financial Studies Journal

Financial Performance of Private Commercial Banks in India: Multiple Regression Analysis

Article excerpt

INTRODUCTION

Among the various financial institutions, banks are the fundamental component and the most active players in the financial system especially financial markets (Guisse, 2012). It provides capital for innovation, infrastructure and job creation and over all prosperity. It has become the integral part of our society, both industries as well as individual consumers.

For the past three decades Indian's banking system has several outstanding achievements to its credit. The most striking is its extensive reach even to the remote corners of the country. It has been increasingly focusing on adopting integrated approach to risk management. According to RBI, majority of the banks already meet capital requirements of Basel III (Economic times, June 20, 2017). Already State-run banks have put in place the framework for asset-liability match, credit and derivatives risk management. Banks look for maximum profitability and have the responsibility in increasing the value of shareholders' equities (State run banks maintain equity ratio of 8.5%) on one side (Economic times, June 20, 2017) and improving customer satisfaction on other side. The role of the banking industry is crucial for sustained economic growth. In this context, it is essential to understand and evaluate banks performance in monetary terms which can be carried out by using financial ratios. Generally, the results are reflected in the bank's return on net worth, return on assets, return on equity, return on investment, operating income, earnings before interest and taxes, net asset value, etc.

The performance of the Banks is a major concern for any countries trade and its development. It has to manage large volume transactions. Industry related stakeholders, investors, stock holders and other policy makers need to know about the financial performance of a bank for granting credits, loans and investments. RBI and government crossed its hands in finding various ways for the full implementation of international capital norms. In this scenario, it is essential to analyse the financial status of banks by examining the ratio analysis which is the most logical way to examine the present and to predict the future position of any banks. Moreover, it determines the ability of the bank to meet its current obligations, its operating efficiency and its performance. These ratios not only help to decision making process but also emphasised on internal status of banks and also its performance in market comparing to other banks. So this study aims to examine the financial performance under three major areas like, internal-based performance, market-based performance and performance related to bank's income. By establishing a secure relationship between the variables, a firm can analyse its financial performance in terms of profitability and viability. The present study focus on measuring the performance of three large private sectors banks namely HDFC, ICICI and AXIS BANK through extensive use of key financial ratios.

LITERATURE REVIEW

Sharifi and Akhter (2016) considered the credit deposit ratio as a barometer of progress of a financial institution like commercial banks. According to them, it indicates the level credit deployment of banks in relation to deposits mobilized by them. A high credit deposit ratio indicates that banks are generating more credit from its deposits and vice-versa. Further, they say that the outcome of this ratio reflects the ability of the bank to make optimal use of the available resources. They carried out a study with a purpose to present the performance of public sector banks through the credit-deposit ratio based on the secondary data collected from 26 public sector banks for a 7 year period (2008-2015). The data were analysed using a descriptive statistics and panel data regression model. Their findings and analysis reveal that the CDR impact positively on public sector bank's financial performance.

Jilkova and Stranska (2017) analysed the effect of the economic situation of the Czech Republic on the performance and profitability of the banking market through selected determinants in their study. …

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