Determinants of Bank-Specific Risk and Performances - A Study on Indian Commercial Banks

Abstract

The profitability of commercial banks in India is examined by the authors in relation to credit, operational, and liquidity issues. The objective of this study is to investigate the impact of various types of risks on bank profitability focusing on liquidity risk, operational risk, and credit risk. Using Prowess Database, secondary data are extracted from the annual accounts of 11 specific commercial banks with 99 firm-year observations over the course of nine years, from 2013 to 2022. Panel Data is used to investigate the impact of banks profitability on liquidity risk, operational risk and credit risk. This research concluded that in Model 1, the percentage of bank leverage and inflation is negative but significant at a 1 percent level. And, In Model 2, bank leverage, capital adequacy ratio, and inflation are significant at the 1 percent level. In Model 3, deposits significantly impact (Current ratio, Liquidity Ratio, Portfolio Concentration, Capital Adequacy Ratio, and Bank Size) at a different significance level. The findings of this research are pertinent to the impact of performance on various peril faced by banks in growing industry and are probably generalizable. This investigation recommends that commercial banks properly manage their deposits through dividing their investments and deposits over several portfolios that have the potential to generate return.