Implications of Asset Quality on Financial Performance Across Ownership Structures: A Comparative Study of SCBs

• Published in: IUP Journal of Accounting Research & Audit Practices Vol. 23; no. 2; pp. 5 - 32
• Main Authors: Madegowda, J, Gowda, Inchara P M
• Format: Journal Article
• Language: English
• Published: Hyderabad IUP Publications 01.04.2024
• Subjects: Bank assets; Banking industry; Banks; Commercial banks; Credit risk; Economic development; Efficiency; Financial performance; Loans; Ownership; Private sector; Profitability; Public sector; India

Scheduled commercial banks (SCBs) in India have been playing a pivotal role, contributing immensely to the overall development of the economy. The SCBs comprise public sector banks (PSBs), private sector banks (PVSBs) and the branches of foreign banks (FBs). These banks are facing a major challenge in the form of deteriorating asset quality, triggering a substantial increase in the amount of non-performing assets (NPAs). Consequently, their profit is either plummeting or they are suffering and reporting higher losses. This study examines the asset quality of three ownership groups of SCBs, viz., PSBs, PVSBs and FBs, and the impact of asset quality on their reported profit, using performance statistics for the period 2012-13 to 2021-22. For evaluation of asset quality of banks and also its impact on their profit, descriptive statistics, one-way ANOVA, chi-square, correlation and t-test are used. It is found that deteriorating asset quality is the root cause for the mounting NPAs and the provision against these NPAs. The study also establishes that the amount of profit has been affected adversely by the deteriorating asset quality of SCBs in varying rates (insignificant to significant and negative to positive).