Return and Risk Analysis of Public and Private Sector Banks: A Comparative Study

Abstract

Banking sector plays a vital role in the development of the economy. Investing in banking securities is very common among investors, but the banking sector securities tend to be volatile in nature, so If the market value of the banking securities drops, the asset shrinks. Investment is an activity that commits funds in any financial or physical form with an expectation of receiving some return in the future. All investments are characterized by the expectation of return. In fact, investments are made with the primary objective of deriving a return. The expectation of a return may be from income (yield) as well as through capital appreciation. Capital appreciation is the difference between the sale price and purchase price of investment. The dividend or interest from the investment is yield. Different types of investments promise different rate of return. The expectation of return from an investment depends upon the nature of investment, maturity period, and market demand and so on. The longer the maturity period longer is the duration for which the investor parts with the value of investment. Hence, the investor would expect a higher return from such investments. Risk is inherent in any investment. Risk may relate to loss of capital, delay in repayment of capital, non-payment of interest or variability of returns. While some investments such as government securities and bank deposits are almost without risk, others are more risky. The risk of an investment is determined by the investment's maturity period, repayment capacity, and nature of return commitment. The longer the maturity period greater is the risk. When the expected time in which the investment has to be returned is a long duration, say ten years instead of five years, the uncertainty surrounding the return flow from investment increases. This uncertainty leads to a higher risk level for the investment with longer maturity rather than an investment with shorter maturity.