THE IMPACT OF ASSET QUALITY ON FINANCIAL PERFORMANCE OF COMMERCIAL BANKS IN INDIA
Commercial banks play a critical role in determining a country's economic stability and progress. There are various factors determining the economic stability and progress of the commercial banks. The quality of assets is one the prominent factors influencing the financial performance of the banks. The objective of this study was to examine the impact of asset quality on the financial performance of the commercial banks. For the purposes of this study the financial performance of commercial banks served as the dependent variable. The asset quality of the commercial banks served as the independent variable. The study used a descriptive research approach to show how the independent variable explained the variance in the dependent variable. A multiple linear regression analysis was applied for the analysis. The results revealed that underwriting standards significantly predicted return on assets, net income to total assets and return on equity. Credit Risk Management Policies, and Procedures significantly predicted net income to total assets. The risk identification significantly predicted net income to total assets, net interest margin and return on equity. The Diversification of Portfolio significantly predicted capital adequacy, efficiency ratio and return on equity. Investment policies, procedures and practices significantly predicted return on assets. Internal Controls and Management Information Systems significantly predicted NPAs, return on assets, net income to total assets and net interest margin and efficiency ratio. The Operational Management Efficiency significantly predicted NPAs.
Asset Quality, Financial Performance, Commercial Banks