A COMPARATIVE STUDY ON THE FINANCIAL PERFORMANCE OF DOMESTIC SYSTEMATICALLY IMPORTANT BANKS (D-SIBS) IN INDIA USING EXTENDED DUPONT ANALYSIS

Abstract

Systematically important banks play a important role in a country’s financial system due to their size, interconnectedness, complexity, substitutability and cross-jurisdictional activity. Their collapse raises the possibility of a domino effect that could severely impact the country’s economy. The RBI adopted the guidelines of D-SIBs in 2014, which was framed by BCBS and FSB in 2011, and identified SBI, HDFC and ICICI banks as Domestic systematically important banks for India. The paper aims to analyse the profitability of D-SIBs in India. The study is based on the secondary data which has been collected from the annual report of the respective banks (SBI, ICICI and HDFC) for the period 2017-18 to 2022-23. ROE of D-SIBs is measured by using extended Dupont analysis having five drivers – Asset Turnover Ratio, Equity Multiplier Ratio, Tax Burden Ratio, Interest Burden Ratio and Operating Margin Ratio. One-way anova along with post-hoc analysis has been applied to determine whether there exists any significant difference among the 5 drivers of ROE of D-SIBs. The analysis revealed that profitability of D-SIBs is comparatively in a good state, where HDFC bank exhibits the highest profitability followed by ICICI bank and SBI bank. The one-way Anova test revealed that there was significant difference in asset yield, interest burden, operating margin and return on equity. However, there was no significant difference found in tax burden ratio among the D-SIBs. The present study will help to provide an insight into the profitability of the D-SIBs in India.