IMPACT OF EARNINGS VARIABILITY AND REGULATORY MEASURES ON INCOME SMOOTHING IN INDIAN BANKS: EVIDENCE FROM AN EMERGING MARKET
DOI:
https://doi.org/10.53555/aqcqmc45Keywords:
Income Smoothing, Loan Loss Provisions, Basel III, Earnings Management, Indian Banks, Capital Adequacy Ratio, NPAAbstract
This study investigates the impact of earnings variability and regulatory measures on income smoothing practices among Indian banks listed on the National Stock Exchange (NSE) during the period 2010–2018. Using Loan Loss Provisions (LLPs) as a proxy for earnings management, the research explores whether Indian banks engage in discretionary provisioning to stabilize profits. Secondary data were obtained from Reserve Bank of India (RBI) publications, bank annual reports, and the CMIE Prowess IQ database. Panel regression techniques were applied to examine the relationships among loan loss provisions, earnings before tax and provisions (EBTP), capital adequacy ratio (CAR), non-performing assets (NPA), total loans (TL), bank size, and GDP growth.
The findings reveal that Indian banks employ income-smoothing practices to maintain stable earnings, particularly in years of high profits or increased credit risk. However, Basel III norms and the RBI’s prudential regulations have reduced the extent of earnings manipulation. The study recommends strengthened monitoring and transparency mechanisms to promote fair reporting and ensure financial system stability.
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