Profitability and Sustainability of Differentiated Banks in India

Abstract

Purpose – The purpose of this study is to examine the profitability and sustainability of differentiated banks in India, particularly Small Finance Banks (SFBs) and Payments Banks (PBs), which have been introduced to enhance financial inclusion. The paper aims to evaluate their financial performance, operational challenges, and strategic positioning within the broader banking ecosystem.

Design/methodology/approach – The study employs an empirical approach, analyzing key performance indicators (KPIs) derived from Reserve Bank of India (RBI) reports and annual financial statements of selected banks. The research adopts both quantitative and qualitative methods to assess financial viability and sustainability factors influencing these institutions.

Findings – The findings suggest that while SFBs demonstrate strong profitability due to their lending capabilities, PBs face significant constraints owing to regulatory restrictions on credit operations. Factors such as digital adoption, cost efficiency, and regulatory frameworks play a critical role in the sustainability of these banking models. The study also identifies competitive challenges posed by traditional financial institutions and fintech firms, influencing the operational strategies of differentiated banks.

Practical implications – The study provides insights for policymakers, regulators, and banking institutions by highlighting key factors necessary for enhancing the sustainability and profitability of differentiated banks. Strategic diversification, fintech collaborations, and a supportive regulatory environment are identified as crucial for long-term success.

Originality/value – This paper contributes to the existing literature by offering a comprehensive evaluation of differentiated banks in India, integrating financial analysis with sustainability perspectives. This study explores the profitability and sustainability of differentiated banks in India by examining their financial performance, operational challenges, and strategic positioning within the broader banking ecosystem. Sustainability factors such as digital adoption, cost efficiency, and regulatory support play crucial roles in shaping the long-term viability of these banking models. The paper concludes that strategic diversification, fintech collaborations, and a favorable regulatory framework are essential to ensuring the continued growth and financial resilience of differentiated banks in India.