The Impact of National Budget and Monetary Policy on Profitability and Operational Efficiency in Public Sector Banks: An Empirical Analysis

Sarita Chouhan; Dr. Mahendra Singhai

doi:10.36948/ijfmr.2025.v07i03.46574

The Impact of National Budget and Monetary Policy on Profitability and Operational Efficiency in Public Sector Banks: An Empirical Analysis

Author(s)	Sarita Chouhan, Dr. Mahendra Singhai
Country	India
Abstract	This research paper is a study of the influence of national budgetary steps and monetary policy instruments on the performance of Public Sector Banks (PSBs) in India in terms of profitability and operational efficiency. The study uses a panel dataset of the top ten PSBs from 2013–2023 to estimate the effect of fiscal transfers (such as recapitalization and sectoral spending) and the key monetary variables (such as the repo rate, cash reserve ratio, and inflation) on various bank-level indicators such as Return on Assets (ROA), Return on Equity (ROE), Cost-to-Income Ratio, and Non-Performing Assets (NPAs). The evidence indicates that PSBs' fiscal interventions, i.e., the capital infusions supplied by the government, have beneficial effects on the profitability as well as asset quality of the banks. By means of fiscal interventions, the capital situation of banks receives a boost, credit management is strengthened, and lending operations, especially, receive a push under economic slump. Conversely, tight money measures such as increase in repo rates and increased cash reserve requirement work in the opposite direction of operational efficiency by increasing the funding cost of banks. Such measures decrease net interest margins, increase the cost-to-income ratio, and can harm overall bank performance. Moderate inflation levels surprisingly have a positive relationship with loan recovery rates and interest spreads. Briefly, this article highlights the interdependent nature of monetary and fiscal policy and PSB performance and identifies that although government support can be integral in enhancing bank performance, tightening monetary policy can stifle efficiency. The article evokes the necessity for effective policy coordination for maximizing the utilization of fiscal and monetary tools towards enhancing the banking sector.
Published In	Volume 7, Issue 3, May-June 2025
Published On	2025-06-05
DOI	https://doi.org/10.36948/ijfmr.2025.v07i03.46574
Short DOI	https://doi.org/g9pzsm

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The Impact of National Budget and Monetary Policy on Profitability and Operational Efficiency in Public Sector Banks: An Empirical Analysis

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