Financial Performance Assessment of Small Banks using EAGLES Model

The Small Finance Banks and Payments Banks are new introductions to the Indian Banking system and most of them complete more than 5 years of active operation. Both banks though are in the Small Bank (Niche Bank) category, the analysis of their financial performance using quantitative models is an unexplored horizon, which is the core objective of this article. This analysis applied the EAGLES (Earning, Assets Quality, Growth, Liquidity, Equity, and Strategy) model for measuring performance. For Small Finance Banks analysis, 7 years of data and for Payments Banks analysis 6 years of data are used. This study included 19 ratios that will improve the spread of learning to a larger perspective. The significance of the EAGLES was tested using One-way ANOVA. The analysis found the Payments banks to be performing better than the Small Finance Banks. The analysis suggests both the small banks drastically improved their loans, advances, and investments area, which may require regulatory policy changes, as the Strategic Response Quotient (SRQ), of all small banks, were found negative. This was also comprehensible from the lower Earnings, Asset quality and Returns on Equity. The Small Finance Banks’ inability to utilise maximum deposits and borrowings for investment, loans and advances is evident from the analysis. The Growth and Liquidity position of both the bank groups stands strong. It can be implied that the new small banks are at the beginning of the growth stage and are expected to introduce innovative financial products at affordable cost resulting in further scaling up the growth.