Comprehensive Analysis of Indian Public Sector Banks Financial Performance Using the TOPSIS Method

Abstract

The government has recently undertaken the consolidation of multiple public sector banks. The primary motivation for conducting this research is to investigate this consolidation effort. The objective of this article is to identify the factors influencing the performance of public sector banks in India and explore the relationships between these factors and the performance of government-operated banks. Within this article, we will analyze financial data from all public sector commercial banks spanning an 11-year period, from 2009 to 2019. Both the system generalized method of moments (GMM) analysis and canonical correlation analysis (CCA) have been employed to assess the impact of determinants on the evaluation of public sector bank performance. The assessment of performance is carried out using the CAMEL framework, which encompasses Capital Adequacy, Assets Quality, Management Efficiency, Earnings, and Liquidity. It's worth noting that the government has recently undergone the consolidation of several public sector banks, which serves as the impetus for this study. The primary aim of this article is to ascertain the variables that shape the performance of Indian public sector banks and their interconnections. Within this research, we will scrutinize financial data from all public sector commercial banks over an 11-year span, spanning from 2009 to 2019. Both the utilization of the system generalized method of moments (GMM) analysis and canonical correlation analysis (CCA) have been deployed to examine how various determinants influence the evaluation of public sector bank performance. The assessment of performance has been conducted through the utilization of the CAMEL framework, an acronym representing Capital Adequacy, Assets Quality, Management Efficiency, Earnings, and Liquidity. This framework is widely employed for appraising the financial soundness of the Indian banking system. The financial well-being of public sector banks (PSBs) holds paramount importance for several reasons. Primarily, PSBs play a pivotal role in delivering financial services to the general populace, especially in rural and semi-urban regions where private banks may not have a significant presence. Consequently, the accessibility of financial services to a broad segment of the population directly influences their financial stability.