From Risk to Returns: An Analysis of Asset Quality, Financial Ratios, and Market Valuation in Indian Banks
Year: 2026
Type: article
Abstract: This study investigates the interplay between asset quality, financial ratios, and market valuation in Indian commercial banks over a twelve-year period (2014–2025). Using a hybrid approach combining Structural Equation Modeling, correlation analysis, and trend evaluation, the research examines whether Non-Performing Assets (NPAs) influence market capitalization directly or through Return on Equity (ROE) as an intermediary. The findings reveal that NPAs exert a significant negative impact on both ROE and market value, while Net Interest Margin (NIM) emerges as a strong positive determinant of valuation. Conversely, Capital Adequacy Ratio (CAR), though vital for regulatory compliance, shows no direct effect on market prices. Mediation analysis challenges conventional assumptions, indicating that profitability alone does not fully explain valuation dynamics. These insights underscore the need for integrated strategies addressing asset quality and operational efficiency, offering practical implications for policymakers, investors, and bank management in strengthening resilience and optimizing shareholder value.
Source: Risks
Authors: Shireen Rosario, Sudha Mavuri
Institutions: Dhofar University, GITAM University
Language: English
Subfield: Accounting
Domain: Social Sciences
Open Access status: gold
Estimated APC paid: $2,172
OpenAlex ID: W7123590756