Comparative Financial Performance Analysis of Neo Banks and Conventional Banks in India (2019-2023): An Empirical Study

Abstract

Aim: This study will compare India's Neo Banking and Conventional Banking systems, focusing on their financial performance indicators from 2019 to 2023. The objective is to understand the differences in economic performance between these two banking systems and identify factors contributing to their net income. Methodology: The study adopts a quantitative research approach with a descriptive research design. It utilises secondary data from the Prowess Database and audited financial reports of Neo and Conventional banks registered with the Reserve Bank of India (RBI). Panel regression analysis is employed to analyse the data, considering both Fixed Effects (FE) and Random Effects (RE) models to assess the impact of various financial indicators on net income. Results: The study reveals significant differences in financial performance, using Fixed Effects (FE) and Random Effects (RE) models for panel regression analysis. Return on Assets (ROA) positively impacts net income, highlighting efficient asset utilization's importance, while Net Profit Margin (NPM) negatively impacts net income, indicating potential inefficiencies. The Asset Turnover Ratio positively affects net income, emphasizing operational efficiency. Gross Profit Margin (GPM) and Gross Profit show varying impacts, with the FE model preferred for reliability. The results suggest Neo Banks, despite operational efficiency and innovation, struggle with profitability, whereas Conventional Banks, though more stable, need operational improvements and digital adoption. This study highlights the dynamic Indian banking sector and the need for both banking models to adapt to a balanced financial ecosystem. Further research is recommended to explore specific operational dynamics and market influences. Conclusion: The analysis reveals that while Neo Banks offer operational efficiency and innovative services, they face challenges in maintaining profitability. Conversely, Conventional Banks, while demonstrating stability, need to enhance operational efficiency and embrace digital innovation to remain competitive. The study underscores the evolving banking sector in India and the necessity for both Neo and Conventional Banks to adapt to technological advancements and changing consumer preferences. Emphasizing the importance of efficient asset utilization and operational performance, the findings suggest that a balanced approach integrating innovation and stability is crucial for a sustainable financial ecosystem. Further research should delve into specific operational aspects and market dynamics to deepen the understanding of these trends.