Measuring Financial Performance of Non-Banking Financial Companies (NBFCs): Evidence from Select BSE-Listed NBFCs In India
DOI:
https://doi.org/10.46977/amt.2024.v05i01.003Keywords:
Financial Performance, Indian Non-Banking Financial Companies, Return on Assets, Return on EquityAbstract
The present study examines the effects of reserves on the proportion of loans disbursed, cost incurred in ratio to income, total assets and total equity on the financial performance, that is, profitability of Indian Non-Banking Financial Companies (NBFCs). The study applies Fixed Effects Panel Regression model to BSE-listed, eleven NBFCs selected on basis of market capitalisation for the period from financial year 2001 to 2023. It was found that excess of reserves in proportion to loans disbursed significantly and negatively affected profitability. In order to maintain liquidity for liability obligations, Indian NBFCs cut short on credit disbursals, which affected profit, as interest income is the main source of revenue for Indian NBFCs. Another important finding in the case of Indian NBFCs was that with an increase in the size of total assets, profitability was negatively affected. It implies that the loans disbursed or investments that were being made by Indian NBFCs were either of poor asset quality or had low-income or profit-generating capacity. The Indian NBFCs invested in or disbursed loans mainly to the risky and unbanked housing and infrastructure sectors and non-creditworthy retail customers, which adversely affected their profitability.
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