The profitability of a country’s banking sector is a critical indicator of its overall economic health. This study examines the impact of financial risk on the performance of the banking sector in India, with a specific focus on identifying the moderating factors that influence this relationship. Using data from 26 Indian banks listed on the stock exchange from 2012 to 2023, the research employs fixed effects regression to investigate the relationship between financial risk and performance. Return on assets (ROA) and return on equity (ROE) were used as the key indicators of financial performance. The independent variables include credit risk (CR), capital adequacy ratio (CAR), liquidity risk (LR), loan-to-deposit ratio (LDR), interest rate risk (IRR), and market risk (MR). The results indicate a significant effect of financial risk on the financial performance of banks, with varying levels of significance at different risk levels. Furthermore, moderated regression analysis was applied to examine the effect of various macroeconomic and bank-specific moderating factors on the association between financial performance and financial risk. The findings provide valuable insights into the risk-performance dynamics within the Indian banking sector.