Efficiency profitability and financial soundness of scheduled commercial banks in India An application of CRAMEL and bankometer models

Abstract

Financial sector of an economy plays an important role in the economic development and prosperity of the country Banking industry serves as the backbone of the financial sector that accumulates saving from surplus economic units in the form of deposits and provides it to deficit economic units in the form of advances Sachdeva 1972 Banking industry provides support to the economy and industries in specific in the time of recessions and economic crisis As an economic institution the bank is expected to be more direct and more positively related to the performance of the economy than the most noneconomic institutions Rondo 1972 Banks are considered to be the mart of the world the nerve centre of the economies and finance of a nation and the barometer of its economic perspective They are not merely dealers in money but are in fact dealers in development Sharma 1974 Hence banking can better be described as the kingpin of the chariot of economic progress newlinenewlineThe banks are very important instruments of macro economic policy to stabilize economy By controlling the volume of credit they are able to check both inflation and deflation effectively in the economy Through the mobilization of resources and their better allocation commercial banks play an important role in the development process of underdeveloped countries Paul and Suresh 2006 In fact the Central Bank depends upon the commercial banks for the success of its monetary policy keeping in view the different requirements of a developing economy It is true that credit policy with regard to volume and direction is subject to the control of the Central Banking Authority In a nutshell the commercial banks have become an omnibus institution in the modern times to which people of varied interests look for help and success Gupta 1985 newlinenewlineCommercial banks in India accounts for 60 per cent of the total assets of the financial system comprising banks insurance companies non banking financial companies cooperatives mutual funds and other smaller financial entities RBI