Impact of Capital Adequacy Ratio on Operating Performance, Profitability and Return Ratio: A Comparison Between Selected Public and Private Sector Banks in India

Abstract

The study aimed to understand the impact of the capital adequacy ratio on operating performance, profitability, and return ratio and compare select public and private sector banks. For this study, panel data was collected from twelve sample Indian banks over ten years (2014-2023). These banks included six public sector banks and six private sector banks. Comparative analysis was performed based on return on assets, return on equity, net profit margin, operating profit margin, net profit per employee, business per employee, net interest margin, cost to income ratio, interest income to total assets, gross non-performing assets and net non-performing asset ratio. Descriptive analysis, independent sample t-test and simple regression were performed on the data. It was found that private-sector banks perform better than public-sector banks. The private sector banks demonstrate more robust financial performance, higher efficiency, better asset quality and more aggressive lending strategies than public sector banks. These differences highlight the need for public sector banks to adopt more efficient practices and improve their financial health to compete effectively with the private sector banks.