Performance and returns volatility of banks in India: public versus private sector

PurposeThis current study draws a comparison between the performance indicators of public sector banks (PSBs) and private sector banks (or non-PSBs) in India. The study controls for the impact of COVID-19.Design/methodology/approachThe study uses strongly balanced panel data for seven years of 12 PSBs and 10 non-PSBs from the Nifty PSU Bank Index and Nifty Private Bank Index. The study applies panel data methodology to arrive at the results.FindingsThe study demonstrates that the behavior of indicators of performance and returns volatility for PSBs and non-PSBs differs substantially. While factors like capital adequacy ratio (CAR), cost management (COST), liquidity (LIQ), inflation and economic growth exhibit a similar impact on both categories of Indian banks, the effect of credit risk (RISK), market power (POWER) and COVID-19 on performance and returns stability is different for PSBs and non-PSBs.Research limitations/implicationsThere is a limited sample size of banks in India.Practical implicationsPSBs and non-PSBs need distinct treatments when calibrating performance indicators.Social implicationsThe performance and stability of banks are essential for society at large, the depositors and the investors.Originality/valueThe study provides vibrant implications for insight for banks to calibrate the variables that determine performance and stability, regulators and policymakers for effective governance of the banking ecosystem and effective utilization of public funds and capital. The findings are relevant for policymaking today, when the government is considering the privatization of a few PSBs.