DO DIGITAL PAYMENT SYSTEMS ENHANCE BANKING PERFORMANCE IN INDIA? EVIDENCE FROM PANEL DATA ANALYSIS

Digital payment systems have become an important part of the Indian banking sector and have changed the way banks operate and serve customers. This study examines whether digital payment systems improve the performance of banks in India. The study uses panel data from 20 scheduled commercial banks for the period 2016–2024. Banking performance is measured using Return on Assets (ROA) to represent financial performance and the cost-to-income ratio to represent operational efficiency. Digital payment adoption is measured through digital payment volume and digital payment value, while bank size, capital adequacy ratio, and asset quality (NPA ratio) are used as control variables.Panel unit root test results show that all variables are stationary at level, making them suitable for panel regression analysis. The results indicate that both digital payment volume and digital payment value have a positive and significant impact on banks’ profitability. The fixed effects model is found to be the most appropriate based on the Hausman test. The study also finds that higher digital payment adoption helps banks reduce operating costs and improve efficiency, while higher non-performing assets negatively affect bank performance.Overall, the study concludes that digital payment systems play a key role in enhancing the financial performance and operational efficiency of Indian banks. The findings highlight the importance of continuous investment in digital payment infrastructure to strengthen the banking system in the digital era.