Digital bank transactions and performance of the Indian banking sector

ABSTRACT

Our study examines the impact of digital bank transactions on the performance of Indian banks. The study aims to identify the digital mode of transaction parameters that influence financial and operating performance and reduce bank costs. A panel data set has been prepared for 2011 to 2020, considering 32 public and private banks. On the prima facie, the share of public sector banks has declined in the digital mode of transactions on the counterpart of private sector banks. It’s evidenced that a 1% increase in the value of Real-Time Gross Settlement (RTGS) and National Electronic Fund Transactions (NEFT) causes a rise of 0.03% and 0.08% in the business per employee, respectively. Indeed, a change in the RTGS and NEFT transaction further explains CASA to Deposit ratio (0.016% and 0.0078%). Also, a change in RTGS shows a prominent effect on the advances (0.7%). Credit card transactions at ATMs and POS have negatively impacted the cost of funds. Our study proposes two practical implications: First, acceleration in promoting RTGS-based transactions is required; consequently, it will enhance the bank’s performance. Secondly, banks should facilitate credit-based digital transactions to lessen the cost of funds.

KEYWORDS:

• Bank performance
• cost of funds
• digital banking
• NEFT
• POS
• RTGS

JEL CLASSIFICATION:

• G20
• E42
• D23
• E32

Acknowledgments

The authors would like to acknowledge the outstanding contribution and comments shared by Mrs. Rajini Saraf, GM, Jammu and Kashmir Bank Pvt. Ltd., Shri Sandeep Mittal, GM, and Shri. A. B. Dutta, GM, Reserve Bank of India.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

¹ The accomplishment of Commissioner’s duties and responsibilities, Implementation of Director’s duty and responsibility, Completeness and duty accomplishment of Committee, Conflict of interests management, Implementation of obedience function, Implementation of internal audit, Implementation of external audit, Implementation of risk management including internal control systems, Fund provision for related parties and large expenses., Financial and non-financial transparency, good CG implementation reports, and internal reporting and Strategic Planning of the Bank.

² Due to space constraint results are not reported here, can available on request.

³ We further perform the regression using 2SLS procedure for the above stated empirical relation, and do not find significant change in the results, due to space constraints results are not provided here.