Volume 15 issue 8 February 2023

Does Electronic Banking Improve the Bank Performance of Indian Public

Sector Banks: A Study of Post Covid Scenario

Abstract
Abhay Singh Chauhan
Assistant Professor, The research is to see how E-banking affects the performance of a bank.
School of Management Sciences, Varanasi As a measure of the electronic method of transactions, we used credit
Email: [email protected] cards, debit cards, National Electronic Fund Transfer (NEFT), Real
Time Gross Settlement (RTGS), and Point of Sale (POS), while Return
on Assets (ROA) was used as a metric of profitability. The research
Richa Banerjee focuses on India's top ten public sector banks, as determined by market
Associate Professor, capitalization. The findings reveal that digital payment instruments
Prestige Institute of Management
considerably influence return on assets, indicating that internet banking
and Research Gwalior
E mail:[email protected] might help banks increase their profitability. Furthermore, the study
shows that electronic banking has a significant favorable influence on
bank profitability. Financial institutions were able to reduce their
banking expenses after the advent of e-banking services. Furthermore,
Subeer Banerjee
technical progress in the banking industry provides additional potential
Assistant Professor,
Prestige Institute of Management for banks to improve their interaction with customers, easier access to
and Research Gwalior banking facilities by clients, and banks' market reach with e-banking.
Email:[email protected] Keywords: E-Banking, Return on Assets (ROA), Profitability, Public
Sector Banks, Covid-19
Introduction
The covid-19 pandemic is without a doubt the world's worst health and
economic calamity ever. The pandemic's disruption has impacted all
industries, and the banking industry is no exception. Nonetheless,
stability and consistent innovation have been critical in rebuilding the
economy. As a result of the pandemic's slowing expansion in numerous
areas, the volume of digital banking has increased. As a result, the ICT-
based payment system became critical, transforming it from a
convenience to a necessity.
Moreover, The concept is not new in the banking sector as it took place in
the Indian economy after economic reforms, which took place in 1992.
In recent years, government initiatives for monetary assistance to the
marginalized sections through direct transfer have also boosted the
volumes of ICT-based financial products and services. Since IT flattens
operations and helps in the advancement of every department,

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 Pacific Business Review (International)

information technology plays a leading role in every considered the digital revolution in the banking sector. The
business sector (G & Vikram, 2018). Financial institutions criteria of banking services changed from 'Conventional
have all acted promptly to ensure business continuity in the Banking to Convenience Banking,' which has a huge
face of the pandemic. Technology will play a significant impact on banks' profitability. Thus, it is counted among the
role in distinguishing the strong from the weak competitors essential banking services. Looking into all these aspects, a
as they navigate through this crisis. However, how prepared major concern, which ignites us to conduct this study, is
are our financial institutions to weather the storm and what whether the volume of these digital banking instruments
changes are they making to stay ahead of the game? We has led to any impact on profitability of public sector banks.
know what their most essential lessons have been and, more For this purpose, past literature created a base discussed
importantly, what opportunities this crisis presents. below.
Digital Payment instruments are considered one of the Literature review
major revolutions in the banking sector. The emergence of
To unearth the impact, Husni Ali Khrawish (2011)
e-banking services was through electronic remotebanking
attempted to study all the domestic banks in Jordan and
services in the early 1980s. The devices like keyboards,
divide the banks into early adopters, recent adopters, and
monitors, and terminals were used. the United American
those who do not have any e-banking service of e-banking
Bank was the pioneer bank, to introduce the concept of
services on the profitability of banks in Jordan. Results do
'Home Computer Banking'in December 1980. The
not support the fact and reveal a negative impact of e-
initiative taken by the United American Bank became the
banking services on banks' lucrativeness, specifically for
revolution in terms of banking services, and it resulted in an
early adopters. However, the study also concluded that
increase in the acceptance of it by the other large banks. At the
results might vary due to fast technological changes. Siam
initial stage, the concept of digital payments was not greatly
(2006) examined the effect of electronic banking on bank
acceptable by most customers. However, the online banking
profitability in Jordan. He found that e-banking negatively
services offered by the major banks changed the mindset of
impacts the short run, whereas it contributes positively to
people, and in the 2000s, its acceptance saw a rise.
banks' profitability in the long run. The study reveals that
Once the banking and financial institutions recognized its those banks using the internet has better efficiency in their
benefits, such as low processing cost and fast access, they operations and have better profitability ratios than non-
began to consider it as an extension of the banking services electronic banking. Electronic banks are dependent largely
(Itah&Ene, 2014; Cobb, 2005). The major drawback in on key deposits for funds, whereas non-electronic banks
accepting the concept of online banking is hesitant fail to do such things. Elsewhere several regressions show
customers in that it is not a secure medium and the reason no significant relationship between e-banking services and
behind this is the lack of awareness. Nevertheless, in recent profitability, revealing that risk is negatively associated
years, its acceptance has increased. Thedemonitisation in with e-banking services. Banks offer more e-banking
2016 played majorrole in acceptance of digital banking. services, and the risk profile of banks is more. The study
The other important factors were introduction of Goods conducted by Malhotra & Singh (2009) concluded that
and Services Tax in 2017, DBT initiatives taken by the banks using internet banking are operating efficiently and
Indian government, and then the pandemic situation that have better profitability ratios than those that do not
made digital payment a necessity. perform operations using the internet. It can be stated that e-
Today, due to the increase in competition and changing banking has a significant positive impact on banking
regulatory environment, banks are encouraging their performance.
customers to respect the adaptability of digital mediums On the contrary online banking reveals an unfavorable
(Saxena & Taneja, 2018). Eventually, online banking is a relationship with the risk profile of financial institutions.
paradigm shift for both the banks and the customers. It is

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 Volume 15 issue 8 February 2023

One more study was done by Muhammad (2013) to know 2016). Ceylan Onay (2008) also studied the impact of internet
how the Nigerian banking industry is influenced by banking on banking performance and concluded that both are
information and communication technology with the help positively related to each other in Turkey in terms of ROE
of annual data from the period 2001 to 2011 by using fixed. (returns on equity), and ROA (return on assets) is increased
Random effect models, which indicate a highly positive along with enhancement in the utilization of electronic
association with return on equity, mean there is an increase banking initiatives and investments in them. Research
in ROE if new and advanced technologies are used by conducted by Sumra (2011) reveals that usage of ICT
banks, whereas reveals an inverse impact of constant banking results in enhanced customer satisfaction,
investment in technology on efficiency. Therefore, the improved efficiency, and growth in profits, whereas a
study emphasizes the framing of policies for the proper decrease in costs or expenses.
utilization of e-banking equipment instead of further The study performed by Jane (2013) suggests that banks
investments. should fully adopt e-banking services rather than as an
In the study conducted by G & Vikram (2018) to analyze the alternative for physical branches to understand how the
impact of IT on a bank's lucrativeness, compared with growth of technology influences the operation in the
marketing expenses, the results reveal that IT has a greater banking sector. G & Vikram (2018) also suggested that
impact on a bank's profitability than marketing. In the study Indian banks focus more on investments to improve and
performed by Vekya (2017), it is revealed that ATM build up the IT infrastructure for efficient and effective
Transactions and Point of Sale transactions (POS) are major performance. In contrast with the above-performed studies,
contributors to E-banking as both the factors possess a the study by Ngungi (2013) concluded the existence of a
substantial favorable effect on the performance and mixed nexus of E-banking with the financial viability of
lucrativeness of financial institutions in Kenya, financial institutions concerning the Kenyan economy.
respectively. In contrast, mobile bank transactions have no Adopting the web as a conveyer mode has a significant
substantial impact on Kenya's commercial banks' favorable effect on the lucrativeness of banks following a
accomplishments. Sabhaya J Ranjan (2014) analyzed how specific period of adoption of technology.
the banking industry has changed with the arrival of
Objective
advanced technology and concluded that the banking
system would not be able to attain success without the use 1. To determine the impact of E-banking on profitability in
of Information and Communication Technology. It has Indian public sector banks.
broadened the aspect of the banking sector in the economy. Research methodology
Banks with technology are more competent in the financial
The population considered for the study was India's entire
market and can positively affect bank profitability.
public sector financial institutions. The sample considered
According to KujurTeju (2015), the establishment of e-
for the study was the top 10 public sector banks of India,
banking leads to an increment in the profit-making ability
namely State Bank of India, Punjab National Bank, Bank of
of banks and customer satisfaction and therefore leads to
Baroda, Canara Bank, Union Bank of India, Bank of India,
improved banks performance. The advancement has a
Indian Bank, Central Bank of India, Bank of Maharashtra,
negative relation to risk and security. Compared with
UCO Bank. The duration considered for the study was 14
developed countries, the developing countries face many
years, particularly from 2007 to 2021. Further specific
barriers to successfully implementing the new technology
statistics of E-banking wherein the parameters considered
initiatives. Electronic banking like ATM, banking via
were a Credit card, Debit Card, NEFT, RTGS, and Point of
mobile, and online banking had a major impact on banks'
Sale (POS). Secondary data were considered for the study;
performance; therefore, Nigerian banks' customers should
particularly the websites of financial data, the Reserve bank
adopt it for convenience and ease (Ezekiel &Olaleakn,

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 Pacific Business Review (International)

of India, and journals were used for data collection. t = t-1j t-j + t ,
Analysis of the data was done with the help of the Ordinary which signifies a random walk with drift and linear trend.
least square test. Moreover, the test of Normality was Test results from the above table state that the variable,
employed for the residuals. namely online banking (0NBAN) and ROA as a measure of
Analysis and discussions profitability is stationary as first and second difference
order of integration, respectively, as the p-value is 0.0180
To ascertain the stationarity of the sample data and to avoid
for online banking and 0.0132 for ROA which is less than
the problem of autocorrelation ADF test is applied, wherein
0.05 that is 5% level of significance, so the null hypothesis
the null hypothesis defines the presence of a unit root.
framed that online banking and ROA has a unit root is
Deriving from AR(p) model representations, this test
rejected.
involves the following equation:

Table 1 Ordinary Least Square (OLS)

Dependent
Independent Variable Coefficient Std. Error T-Stats Prob.
Variable
C 55.44609 12.23242 4.532717 0.0003
ROA
Digital Payment System -0.230241 0.069757 -3.300633 0.0040
Adjusted R-Squared Durbin-Watson Stats. F-Stats. Prob.(F-Stats.)
0.677700 2.609991 8.509635 0.000123

The Ordinary Least Square (OLS) method is applied for is forecasting a 67.77% true value of profitability (ROA) for
predicting unknown parameters in the regression model. In public sector banks. The F-statistics show the combined
other words, we can say that OLS is applied to estimate the effect of digital payment systems on ROA, and the results
effect of the independent variable on the dependent one and show the significant effect of the digital payment system on
residuals as well. the profitability of public sector banks in India, as the F stats
Adjusted R square shows the explanatory or furcating came out to be 8.509635. In contrast, its P-value is
power of the model. The table shows the value of adjusted R 0.000123, which is less than a 5% significance level.
square as 0.6777, showing that the digital payment system
Table 2 Residual statistics
Skewness Kurtosis Jarque-Bera Probability
-0.247810 1.606767 2.368968 0.305904
The table above exhibits the Jarque-Bera statistics applied of the suggestions are made to public sector banks. Public
to determine whether there seems to be any relation among sector banks must initiate a financial literacy campaign to
the residuals. The table depicts the association of residuals train and encourage non-users and illiterate customers to
by rejecting the null hypothesis as the p-value came out to utilize banking facilities. E-Banking was an innovative tool
be greater than 5%. useful to the public/government to bring financial
innovations. With the advent of new technologies, banks
Conclusion and Implication
should create awareness. Despite the good results, the bank
With the advent of new technologies, it becomes imperative should focus on the country's rural areas to bring more
for the banks to match the pace of changing environment participation from the people living in remote areas. This
and become more technology friendly. In this regard, some can be done by creating awareness among them. Service

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 Volume 15 issue 8 February 2023

Quality also becomes one of the most important factors for banking sector. It could help future researchers to impart the
profitability, as customer satisfaction will ensure more results for their studies for its effective utilization.
participation in E-banking services. The same companies
Future research
providing applications like Paytm, phonepe, Bhim, and
many more should make user-friendly applications, so the The present study focuses on internet banking and its effect
customer benefit from internet banking services more on the profitability of public sector banks concerning the
frequently and easily. Indian context; future studies can focus on the banking
sector of the world's developing countries. Secondly, the
This research made an effort to determine the impact of E-
study focuses on public sector banks, and it opens up the
banking on Banks' profitability by using the variables of
future scope for private sector banks. Thirdly, with the help
Online Banking and ROA of public sector banks in India
of the present study, research can be done to analyze the
from 2007-to 2021. In order to analyze the stationary of the
future of banks post-Covid 19 situations.
data, we have employed the augmented dickey fuller unit
root test, and jarque-bera statistics was employed in order to Bibliography
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