An Evaluation of the Financial Performance of Indian Public Sector Banks with Special Reference to Capital Adequacy and Asset Quality
Ashwath R *
Department of Commerce, Rani Channamma University, Belagavi, India.
Sachindra G R
Department of Commerce, Rani Channamma University, Belagavi, India.
*Author to whom correspondence should be addressed.
Abstract
Aims: This research focuses on two key dimensions of financial health: capital adequacy and asset quality. Capital adequacy, measured by Basel III norms, Debt to Equity Ratio (DER), and Leverage Ratio (LR), is pivotal in assessing a bank’s resilience to financial shocks. Meanwhile, Asset Quality, indicated by metrics like Gross Non-Performing Assets (Gross NPA), Net NPA, and Total Investments to Total Assets (TITA), reflects a bank’s risk management capabilities and the strength of its loan portfolio. This study aims to evaluate the financial performance of selected PSBs in India from 2019 to 2024. Through a detailed analysis of capital adequacy and asset quality ratios, the research provides insights into the banks' adaptation to regulatory demands, the impact of non-performing assets on their capital buffers, and their overall financial soundness.
Study Design: The study employs quantitative methods.
Place and Duration of Study: This study aims to evaluate the financial performance of selected Public Sector Banks in India from 2019 to 2024.
Methodology: The study evaluates the financial performance of five selected Public Sector Banks based on their Net Profit and employs quantitative methods using secondary data from annual reports of selected banks and Reserve Bank of India publications and money control.com.
Results: The analysis of Capital Adequacy and Asset Quality of Indian Public Sector Banks from 2019 to 2024 reveals a clear trajectory of improvement in both areas. Public sector banks have shown notable progress in bolstering their capital buffers, aligning with Basel III norms, and enhancing their capacity to absorb financial shocks. This has been evidenced by improvements in key ratios such as Basel III, Debt-to-equity ratio (DER), and Leverage Ratio (LR). Simultaneously, the significant decline in both Gross and Net Non-Performing Assets (NPAs) across all banks indicates better asset management, loan recovery, and provisioning strategies.
Keywords: Financial performance, capital adequacy, asset quality, Non-Performing Assets (NPAs), Basel III compliance, Debt to Equity Ratio (DER), Leverage Ratio (LR), gross NPA ratio, net NPA ratio