Are Top Private Banks Digging the Invisible Holes in the Balance Sheet?: An Empirical OBSI Investigation

Are Top Private Banks Digging the Invisible Holes in the Balance Sheet?: An Empirical OBSI Investigation

Hariom Gurjar (Periya Management and Computer College, India), Akhilesh Tripathi (State Bank of India, India), Neha Mathur (Poornima University, India) and Yamini Saraswat (Periya Management and Computer College, India)
DOI: 10.4018/978-1-7998-2372-8.ch011


Off-balance-sheet activity played a vital role in helping banks limit long-term financial resources in the balance sheet report and increase the bank's profitability worldwide. The authors explored the determinates of OBS items with banking and economic factors influencing off-balance items in the measurement of banks' output of selected large banks in India for the duration of 2008 to 2017. This study used a multiple regression model to describe the logical connection between the role of OBS and its various determinants like bank size, CRAR loan SLR, NNPA, NIM, ROA, GDP, inflation for the said period. This study found that bank size and NIM were positively affected the OBS activities, whereas CRAR and loan negatively affected the OBSA of selected private sector banks.
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The word off balance sheet itself propagates the understanding that activities that are not shown on the balance sheet are generally called off balance sheet items (OBS). So off balance sheet exposure involves the funding of assets in such a way that they do not appear on the balance sheet. It is an increasingly important area of consideration because firms are trying to increase the firm’s value for the benefit of shareholders.

OBSA are generating a significant portion of non-interest income majorly for private and foreign banks in India. As the majority of banks have not given much significance to these OBSA since the liberalization of Indian economy as they relied only on core banking products. Indian banking sector has albeit changed but slowly and painfully.

The situation anyway changed significantly amid of following reforms reasons:

  • The Deregulation

  • Branch Licensing Policy

  • The Asset Classification initiation,

  • The source of Income

  • Stringent CAR Norms

  • Stiff completion in the generation of non-traditional income


Main Focus Of The Chapter

This examination intends to discover the contribution of OBSA in the income of the selected private banks. This study would capture empirical verification on the determinants of OBSA of selected banks in India. A quantitative research approach is used to measure the responsiveness of off balance sheet activities to different elements as Creswell 2009 used a similar research approach. Creswell collected numeric data of variables (both dependent and independent) from financial reports of eight consecutive years.

  • To determine the OBS components for the top private banks in India.

  • To investigate the magnitude to which the top private banks in India involve in off balance sheet activities.

  • To investigate the impact of bank size, loan, CRAR, SLR, NNP, NIM, ROA, GDP and Inflation on the OBSA of the top private banks in India.

The time horizon for the study has been taken the period of 2008 to 2017 by using the panel data analysis. In line with the above research questions and objectives the following hypotheses were tested:

  • H1: Bank size (Total Asset) effects OBSA of selected banks.

  • H2: CRAR effects OBSA of selected banks.

  • H3: Loan effects OBSA of selected banks.

  • H4: SLR effects bank OBSA of selected banks.

  • H5: NNPA effects OBSA of selected banks

  • H6: NIM effects OBSA of selected Banks.

  • H7: ROA effects OBSA of selected banks

  • H8: GDP effects OBSA of selected Banks

  • H9: Inflation rate effects OBSA of selected banks.

Key Terms in this Chapter

Malmquist Productivity Index (MI): Is a bilateral index that can be used to compare the production technology of two economies. It is named after Professor Sten Malmquist, on whose ideas it is based. The MI is based on the concept of the production function.

Boot Strapped Regression Model: Bootstrapping is a nonparametric approach to statistical inference that substitutes computation for more traditional distributional assumptions and asymptotic results.

Off Balance Sheet Items (OBSI): Off-balance-sheet activities stand for those exposures or activities which generate income but generally not captured under traditional accounting standard with no classification as asset or liabilities.

Stochastic Frontier Analysis (SFA): Refers to a body of statistical analysis techniques used to estimate production or cost functions in economics, while explicitly accounting for the existence of firm inefficiency.

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