Performance Evaluation Through Roe and Dupont Components: A Comparative Study of Indian Public Sector Banks

Abstract

The Indian banking sector has undergone significant transformation over the past five decades, transitioning from traditional operations to the digital era of Banking 4.0. This study conducts a comparative analysis of Return on Equity (ROE) and its DuPont components: Net Profit Margin, Asset Turnover, and Equity Multiplier for five major public sector banks (State Bank of India, Punjab National Bank, Bank of Baroda, Canara Bank, and Indian Overseas Bank) over the period 2015 to 2024. The objective is to identify key drivers of profitability and assess performance during different phases including the NPA crisis (2015 to 2018), the recovery period (2019 to 2020), and the post-merger digital transformation phase (2021 to 2024). Findings indicate that all banks experienced negative or low ROE during the NPA crisis primarily due to poor asset quality and high provisioning. Post-2020, improvements in net profit margin and stronger capital structures contributed to significant ROE recovery, while asset turnover remained relatively stable. SBI and Bank of Baroda emerged as the best performers in the recovery phase, whereas IOB and PNB showed gradual improvement from deep financial stress. The analysis underscores the critical role of risk management, operational efficiency, and digital adoption in sustaining profitability. This study provides valuable insights for investors, regulators, and policymakers and recommends future comparative research with private sector banks to benchmark public sector performance.