Internet banking intensity and bank profitability: evidence from emerging Indian economy

Abstract

Purpose

The purpose of this study is to investigate the impact of Internet banking intensity on banks' profitability performance. It also examines the deferential impact of Internet banking intensity on the profitability performance of public and private sector banks.

Design/methodology/approach

The study uses data of 67 commercial banks operating in India over 9 years from 2011–2012 to 2019–2020. The volume and value of Internet banking are used as two proxies for Internet banking intensity. Return on assets and return on equity are considered measures of banks' profitability performances. The system GMM model and the three-stage least square (3SLS) model are used to investigate the impact of Internet banking intensity on performance.

Findings

The results indicate that the volume and value of Internet banking increase the overall profitability of the banks. The results further reveal that the positive impact of Internet banking on performance is higher in the case of public sector banks which possibly indicates that there are economies of scale of operation.

Practical implications

The results suggest that banks and policymakers should strive to increase internet banking scope to improve performance. Private banks should focus on increasing their customer base to achieve economies of scale and public banks should work on the efficient utilization of resources.

Originality/value

Prior studies investigated the impact of Internet banking adoption on the performance of banks. This study attempted to examine the impact of Internet banking intensity on the profitability performance of banks in the context of an emerging economy.

Citation

Ghose, B. and Maji, S.G. (2022), "Internet banking intensity and bank profitability: evidence from emerging Indian economy", Managerial Finance, Vol. 48 No. 11, pp. 1607-1626. https://doi.org/10.1108/MF-09-2021-0434