Financial Sustainability Beyond Banks’ Fundamentals in India: Evidence from Internal Vulnerabilities and External Financial Risks

Articles in Press

Document Type : Original Article

Authors

Mamta Rani

Sangeeta M Mittal

Haryana School of Business, Guru Jambheshwar University of Science & Technology, Hisar, Haryana

10.22067/ijaaf.2026.100131.1718

Abstract

There is growing emphasis on evaluating banks’ capacity to sustain returns by examining risks that arise beyond their balance sheets. Therefore, the present study aims to investigate how both internal vulnerabilities and external financial risks influence the financial sustainability of Indian banks during 2015 to 2024. The findings indicate that financial sustainability is persistent and net non performing assets significantly reduces it, while gross non performing assets have insignificant impact on financial sustainability. This indicates that net impact of impaired assets is more crucial for sustaining bank returns than the overall gross asset deterioration. External financial risks also offer valuable insights, MPU weakens financial sustainability, whereas international financial stress is significantly but positively influences it. The findings do not indicate that international financial stress is beneficial for the Indian banks’ financial sustainability. Instead, it highlights the ability of Indian banks to endure external financial challenges, supported by domestic regulatory measures and strong domestics earning foundations that can mitigate the adverse effect of financial stress. Among macroeconomic conditions, GDP is insignificant impact, while inflation shows a significant positive impact on financial sustainability. The findings emphasise the need to improve the recovery and resolution of stressed assets, integrate MPU into financial planning and risk evaluation and consistently monitor international financial conditions when considering external risks. For policymakers, enhancing the predictability of monetary policy and reinforcing the monitoring of international financial developments can create an environment where Indian banks are capable of sustaining returns amid evolving financial conditions.

Keywords

Financial sustainability

financial stress

uncertainty and banks

Subjects

• Finance

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