Determinants of Financial Health of Commercial Banks in India: A Study of Nifty 50 Banks.

The Indian stock market's benchmark index Nifty Bank includes 12 banks from both public and private sectors. Six of these 12 banks, which make up the Nifty 50 index, are big commercial banks; hence, the performance of the banking industry is important to stock market results. This study investigates the determinants of financial health of indexed banks and their relationship with the risk factors. In the study, financial health is assessed using return on equity (ROE) and return on assets (ROA), while risk is assessed using the factors related to regulatory requirement, operating expenses, interest expenses, cost of funds and non-performing assets (NPAs). ROA and ROE are the dependent variables, and capital adequacy ratio (CAR), net non-performing assets (NNPA), cost to income (COI), operating expenses ratio (OER) and interest expense ratio (IER) are the independent variables. Pooled regression estimation and fixed effects panel estimation are used to analyze the relationship between performance-related and risk-related variables. The regression estimates suggest that there is a significant impact of risk on bank's financial health. The financial health measures ROE and ROA are greatly impacted by the risk elements COI, CAR, NNPA and operating expenses. The study suggests that banks should reduce their COI and NPAs for better financial health. [ABSTRACT FROM AUTHOR]