Impact of frauds on the performance of indian public sector banks: An empirical analysis

Abstract

Banks is a pivot around which the whole economy clusters and plays a significant role in the development of an economy. Fraud is a dimension of corruption which has been enrooted in almost all economies of the world and has affected financial sector as whole and banking sector is not an exception to this. Considering the treacherous effect of the fraud on the banking sector, the present study is aims to analyze the impact of the fraud on the performance of the Indian public sector banks. Here the performance is taken in terms of Return on Assets (ROA), Return on Equity (ROE) and Return on Investment (ROI) which are serving as dependent variable. On the other hand frauds are considered as Severity of Frauds (SOF) and Frequency of Frauds (FOF) which are serving as independent variable. The data of 11 years i.e. (2005–2015) is taken into account which is collected from the India Stat. The base year for the purpose of evaluation is taken as 2005, as this is the year in which a master circular was issued by the RBI containing guidelines/instructions to the bank on the procedure to be followed in dealing with forged notes detected at the counters of banks’ branches. Accordingly the following 26 public sector banks fall under the scope of the study. For the purpose of analysis, fixed and random effect model of panel data technique is used. The collected data is analyzed with help of statistical software E-Views. The p-value of F-Test is.000 which is less than.05 accordingly we reject the null hypothesis that the frequency and severity of frauds in the public sector banks have no significant impact on their Return on Assets (ROA), Return on Equity (ROE) and Return on Investment (ROI).. Alternatively there is significant impact of frequency and severity of frauds on ROA, ROE and ROI in the Indian public sector banks.