Deepa Pillai – Symbiosis School of Banking and Finance, Symbiosis International (Deemed University), Maval Taluka,
Mulshi, Pune – 412115, India

Leena B. Dam – Global Business School and Research Centre, Tathawade, Wakad, Pune-33, India


5th International Conference – ERAZ 2019 – KNOWLEDGE BASED SUSTAINABLE DEVELOPMENT, Budapest – Hungary, May 23, 2019, CONFERENCE PROCEEDINGS

Published by: Association of Economists and Managers of the Balkans – Belgrade, Serbia
Conference partners: Faculty of Economics and Business, Mediterranean University, Montenegro; University of National and World Economy – Sofia, Bulgaria; Faculty of Commercial and Business Studies – Celje, Slovenia; Faculty of Applied Management, Economics and Finance – Belgrade, Serbia;

ISBN 978-86-80194-20-2, ISSN 2683-5568, DOI:


Commercial banks are traditional financial institutions accepting deposits and lending
whereby maintaining financial stability. Stability of the banking system and viability of banks is considered
to be of principal significance growth of the economy. The shifting landscape of financial system
has brought transition in the businesses of the banks along with rise in stressed asset levels. Quality of
assets of bank directly affect the income, expense and balance sheet of the banks. The paper attempts
to investigate the change in the income composition of banks further it also examines the change in
the asset quality of banks over a period of 10 years. The research also aims to review the relationship
between the asset quality and profitability of banks. Using a sample of public and private banks from
India, a panel regression analysis affirmed the interrelationship between income, asset quality and
earnings which indicates banks focus on nontraditional income has improved the quality of earnings,
however higher credit to deposit ratio has declined the asset quality over the time span. Lower asset
quality lead to lower return on assets and return on equity which confirms to the study by Lown and
Friedman (1991) lower asset quality in economies defer economic recovery by decreasing operating
profit margin and eroding capital base for new loans.

Key words

Financial Stability, Asset Quality, Return on Asset, Income, Balance Sheet.


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