Banks in India: A Balancing Act Between Profitability, Regulation and NPA

Research on the impact of transparency and disclosures (TD) on the firm’s valuation presents an ambiguous result. The effect of disclosure on value is a concern because disclosure is not an economic activity. It grows further due to the embellishment of positive disclosures and the suppression of hostile facts. This situation has motivated the authors to conduct the current research. The study aims to empirically find the influence of TD on the valuation of banks in India while the Environmental, Social, and Governance Index (esgi), Shareholder activism index (shai), and Lerner Index (li) act as moderators. A panel data regression (PDR) is adopted to analyse the data in the study. Panel data for 31 public/private banks for ten years (2010–2019) are collated. The authors used econometric models to understand the linear, quadratic, and interaction association of Transparency and Disclosure (TD) with the valuation of the banks in India. It is empirically found that TD alone does not impact the valuation of banks but is positively associated with a bank’s value under the influence of the moderators, Environmental, Social, and Governance variables (esgi), and shareholder activism (shai).

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“…Our multiple-model approach also shows similar results in most cases. Hence, it also confirms the robustness of the results (Kanoujiya et al 2021…”

Section: Robustness Test Of Resultssupporting

confidence: 82%

The Influence of Transparency and Disclosure on the Valuation of Banks in India: The Moderating Effect of Environmental, Social, and Governance Variables, Shareholder Activism, and Market Power

Bhimavarapu

Rastogi

Abraham

2022

JRFM

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“…Kanoujiya et al [64] revealed through empirical evidence that Indian bank regulations lack a proper understanding of what banks require and propose reforming and transforming regulation in Indian banks so that responsive governance and regulation can occur to make banks safer, supported by Rastogi et al [105]. The positive impact of regulation on NPAs is widely discussed in the literature.…”

Section: Regulation and Npa (Risk-taking Of Banks)mentioning

confidence: 99%

A literature review of risk, regulation, and profitability of banks using a scientometric study

Rastogi

Sharma

Pinto³

et al. 2022

Futur Bus J

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This study presents a systematic literature review of regulation, profitability, and risk in the banking industry and explores the relationship between them. It proposes a policy initiative using a model that offers guidelines to establish the right mix among these variables. This is a systematic literature review study. Firstly, the necessary data are extracted using the relevant keywords from the Scopus database. The initial search results are then narrowed down, and the refined results are stored in a file. This file is finally used for data analysis. Data analysis is done using scientometrics tools, such as Table2net and Sciences cape software, and Gephi to conduct network, citation analysis, and page rank analysis. Additionally, content analysis of the relevant literature is done to construct a theoretical framework. The study identifies the prominent authors, keywords, and journals that researchers can use to understand the publication pattern in banking and the link between bank regulation, performance, and risk. It also finds that concentration banking, market power, large banks, and less competition significantly affect banks’ financial stability, profitability, and risk. Ownership structure and its impact on the performance of banks need to be investigated but have been inadequately explored in this study. This is an organized literature review exploring the relationship between regulation and bank performance. The limitations of the regulations and the importance of concentration banking are part of the findings.

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“…After empirically examining the determinants of NPAs, the study examines whether NPAs adversely affect access to new bank credit, the primary objective of the SHG-bank linkage programme. Studies which generally find a negative association between NPAs and credit growth through banks' profitability channels for India include Kanoujiya et al (2021) and Wadhwa and Ramaswamy (2020). However, there are no studies that discuss this channel with particular reference to SHGs.…”

Section: Literature and Few Stylised Factsmentioning

confidence: 99%

Loan Repayment Dynamics of Self-help Groups in India

Muduli

Sharma

2022

Margin: The Journal of Applied Economic Research

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The overall ratio of non-performing assets (NPAs) to total advances (the NPA ratio) extended to self-help groups (SHGs) has historically remained below 8 per cent in India. However, in the central, northern, and north-eastern regions of India, this ratio is relatively high and has remained above 15 per cent since 2015–2016. Using state-level data, the study identifies SHG-specific and state-specific factors that might be responsible for higher NPAs ratios. It also examines whether higher NPAs constrain access to future credit. Spatial analysis confirms the existence of geographical clustering of NPAs in the northern and central regions of the country. SHGs with lower outstanding loans and lower savings are more likely to default, the relationship being stronger in states with higher NPAs. The article finds that states with higher SHGs densities, per capita incomes, and road and railway connectivity, and lower infant mortality rates have lower NPAs in their SHGs. SHGs with lower savings and higher NPAs operating in states with lower per capita incomes and banking penetration face difficulties accessing fresh credits. JEL Codes: G21, O18, R51

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Banks in India: A Balancing Act Between Profitability, Regulation and NPA

Cited by 19 publications

References 83 publications

The Influence of Transparency and Disclosure on the Valuation of Banks in India: The Moderating Effect of Environmental, Social, and Governance Variables, Shareholder Activism, and Market Power

The Influence of Transparency and Disclosure on the Valuation of Banks in India: The Moderating Effect of Environmental, Social, and Governance Variables, Shareholder Activism, and Market Power

A literature review of risk, regulation, and profitability of banks using a scientometric study

Loan Repayment Dynamics of Self-help Groups in India

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