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Determinants of Profitability of Indian Commercial Banks


Affiliations
1 Director & Professor, Symbiosis Institute of Business Management, Survey No 292, Mamisipalli, Nandigama Mandal, Ranga Reddy, Hyderabad - 509 217, Telangana, India
2 Director, Indian Institute of Management Tiruchirappalli, Pudukkottai Main Road, Chinna Sooriyur Village Tiruchirappalli - 620 024, Tamil Nadu, India
3 Deputy Director &Associate Professor, Symbiosis Institute of Business Management, Survey No 292, Mamisipalli, Nandigama Mandal, Ranga Reddy, Hyderabad - 509217, Telangana, India

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This study examined the effect of determinants influencing the performance of 45 commercial banks in India, post the global financial crisis. The random effect model on balanced panel data for the period from 2010 - 2016 was performed to determine the impact of the macroeconomic and bank specific factors on the profitability of 45 Indian commercial banks (26 public sector banks and 19 private sector banks). The results suggested that the private sector banks performed better than the public sector banks. Findings of the model revealed that a significant part of the commercial banks' profitability was explained by bank specific factors like the NPAs, profit per employee, operating profit to total assets, and investment to total assets, while the capital adequacy ratio remained insignificant. The macroeconomic variables like GDP, IIP, and WPI were significant in explaining the profitability of the Indian commercial banks. This paper highlighted new facts in better understanding of the profitability of commercial banks in growing economies like India.

Keywords

Random Effect Model, Indian Commercial Banks, Profitability, CAMEL

C23, C59, C87, G21

Paper Submission Date : July 18, 2018 ; Paper sent back for Revision : December 6, 2018 ; Paper Acceptance Date : December 20, 2018

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  • Determinants of Profitability of Indian Commercial Banks

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Authors

Ravi Kumar Jain
Director & Professor, Symbiosis Institute of Business Management, Survey No 292, Mamisipalli, Nandigama Mandal, Ranga Reddy, Hyderabad - 509 217, Telangana, India
Bhimaraya Metri
Director, Indian Institute of Management Tiruchirappalli, Pudukkottai Main Road, Chinna Sooriyur Village Tiruchirappalli - 620 024, Tamil Nadu, India
K. P. Venugopala Rao
Deputy Director &Associate Professor, Symbiosis Institute of Business Management, Survey No 292, Mamisipalli, Nandigama Mandal, Ranga Reddy, Hyderabad - 509217, Telangana, India

Abstract


This study examined the effect of determinants influencing the performance of 45 commercial banks in India, post the global financial crisis. The random effect model on balanced panel data for the period from 2010 - 2016 was performed to determine the impact of the macroeconomic and bank specific factors on the profitability of 45 Indian commercial banks (26 public sector banks and 19 private sector banks). The results suggested that the private sector banks performed better than the public sector banks. Findings of the model revealed that a significant part of the commercial banks' profitability was explained by bank specific factors like the NPAs, profit per employee, operating profit to total assets, and investment to total assets, while the capital adequacy ratio remained insignificant. The macroeconomic variables like GDP, IIP, and WPI were significant in explaining the profitability of the Indian commercial banks. This paper highlighted new facts in better understanding of the profitability of commercial banks in growing economies like India.

Keywords


Random Effect Model, Indian Commercial Banks, Profitability, CAMEL

C23, C59, C87, G21

Paper Submission Date : July 18, 2018 ; Paper sent back for Revision : December 6, 2018 ; Paper Acceptance Date : December 20, 2018




DOI: https://doi.org/10.17010/ijf%2F2019%2Fv13i1%2F141016