Credit Risk and financial performance banks: a panel data analysis

Abstract

The NIFTY50 index is the premier benchmark for the Indian stock market, comprising 50 companies from 13 diverse sectors. As five of the country's largest commercial banks are part of this index, their performance indicates the overall market performance. This study aimed to investigate the correlation between credit risk and the financial performance of these NIFTY50-indexed banks. Utilizing secondary data collected from the banks' annual reports over the past decade (2012-2021), the study employed panel data regression analysis to examine the relationship between return on equity and return on asset as measures of financial performance and capital adequacy ratio, net non-performing assets (NNPAs), and cost to income (CI) as measures of credit risk. The results revealed a significant relationship between credit risk and financial performance, with the capital adequacy ratio having no significant impact. The study recommends that NIFTY50-indexed commercial banks implement strategies to lower their CI and NNPAs to improve their financial performance.