The Impact of Information and Communications Technology on Bank Profitability: Evidence from India

ABSTRACT

In today’s working environment, the role of Information and Communications Technology (ICT) is indispensable across various sectors, as extensively researched by scholars. This study specifically examines how ICT impacts the profitability of banks, focusing on 33 banks operating in India over a decade from 2010 to 2019. The analysis also delves into the influence of ICT on banks’ profitability amidst and after the COVID-19 pandemic. Employing panel data analysis, the study reveals that ICT initially has a negative linear relationship with banks’ profitability, measured by Net Interest Margin (NIM). However, a quadratic analysis shows a positive U-shaped association between ICT and profitability, suggesting that as ICT investment increases beyond a certain point, profitability improves. The study identifies that Non-Performing Assets (NPAs) negatively moderate the relationship between ICT and profitability. These findings underscore the importance for banks to strategically invest in ICT to optimize long-term profitability. The implications are significant for stakeholders such as policymakers, shareholders, and managers, emphasizing the crucial role of ICT tools in enhancing a bank’s financial performance. The study advocates against reduced investments in ICT, highlighting its potential to bolster transparency, accountability, and extend financial services, thereby contributing positively to the national economy. This research expands on existing literature by offering novel insights into how ICT influences bank profitability, particularly under the influence of NPAs. It underscores the imperative for banks to integrate ICT as a strategic asset to enhance operational efficiency and sustain profitability, ultimately benefiting both the institution and the broader economy.

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