STUDY ON THE IMPACT OF CAPITAL STRUCTURE ON FINANCIAL PERFORMANCE OF INDIAN BANKS: HDFC, SBI, ICICI AND PNB

Abstract

The banking industry is a critical component of any economy, and its stability and efficiency are crucial for sustained economic growth. One of the key determinants of the performance of banks is their capital structure, which refers to the mix of debt and equity used to finance their operations. In recent years, the issue of capital structure has become particularly important for banks in emerging markets such as India, where the financial sector has been undergoing significant changes. The objective of this research report is to investigate the impact of capital structure on the financial performance of four major banks in India: HDFC, SBI, ICICI and PNB. The research seeks to understand the relationship between the banks' capital structure and their profitability, asset quality, liquidity and solvency. In doing so, we aim to identify the factors that contribute to the financial performance of these banks and provide recommendations for improving their performance. The scope of this study will cover the period from 2018 to 2022, during which the Indian banking sector underwent significant reforms, including the implementation of the Insolvency and Bankruptcy Code, recapitalization of public sector banks, and adoption of the Basel III norms. The study will use publicly available data from the banks' financial statements, including their balance sheets, income statements, and cash flow statements, to analyze their capital structure and financial performance. The methodology used in this study will include a descriptive analysis of the banks' capital structure and financial performance, including measures such as Return on Assets (ROA), Return on Equity (ROE), Debt-to-Equity (D/E) ratio, and interest coverage ratio (ICR). We will also use regression analysis to measure the statistical significance of the relationship between capital structure and financial performance, controlling for other factors that may influence performance. In conclusion, this study seeks to provide insights into the factors that influence the financial performance of Indian banks, and their capital structure in particular. By analyzing the capital structure of HDFC, SBI, ICICI and PNB, we hope to provide recommendations for optimizing the mix of debt and equity to enhance their financial performance.