Net Stable Funding Ratio (NSFR) and Bank Performance: A Study of the Indian Banks

Anureet Virk Sidhu, Shailesh Rastogi, Rajani Gupte, Aashi Rawal () and Bhakti Agarwal
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Anureet Virk Sidhu: Symbiosis Institute of Business Management, Symbiosis International (Deemed University), Pune 412115, India
Shailesh Rastogi: Symbiosis Institute of Business Management, Symbiosis International (Deemed University), Pune 412115, India
Rajani Gupte: Department of Management, Symbiosis International (Deemed University), Pune 412115, India
Aashi Rawal: Symbiosis Institute of Business Management, Symbiosis International (Deemed University), Pune 412115, India
Bhakti Agarwal: Symbiosis Institute of Business Management, Symbiosis International (Deemed University), Pune 412115, India

JRFM, 2022, vol. 15, issue 11, 1-13

Abstract: The present study examines the impact of the Net Stable Funding Ratio (NSFR) on the performance of Indian commercial banks from 2010 to 2021. The study further investigates how the relationship between liquidity and performance varies under the influence of bank-specific factors such as ownership structure (Promoter vs. Institutional investors). Bank performance is evaluated using a two-fold approach—Profitability measures (NIMs and ROA) and NPA levels of banks. Using the Dynamic panel data regression technique, we find that the relationship between NSFR and NIMs is negative, implying that bank NIMs tend to decline as banks comply with NSFR regulation. Furthermore, the study demonstrates that the inverse relationship between NSFR and bank NIMs becomes more profound when promoters’ stakes are high. Finally, the results highlight that for banks with higher institutional holdings, NPA levels witness an upward trend as the NSFR ratio increases. From a policy perspective, study results will help policymakers understand how changes in liquidity levels impact the wider banking sector and guide them on the overall direction in which to progress with the reforms.

Keywords: NSFR; NIMs; ROA; NPAs ownership structure; dynamic panel data analysis (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2022
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