Journal of Commerce and Accounting Research

Open Access Open Access  Restricted Access Subscription Access
Open Access Open Access Open Access  Restricted Access Restricted Access Subscription Access

Determinants of Profitability of Private Sector Banks in India


Affiliations
1 Department of Commerce and Business Management, Guru Nanak Dev University, Amritsar.
2 Guru Nanak Dev University College, Narot Jaimal Singh, Pathankot.
     

   Subscribe/Renew Journal


As financial intermediaries banks play an important role in the operations of an economy. The paper examines the determinants of profitability in the private sector banks in India for the years 2006-07 to 2009-10. A sample of 23 banks in the private sector has been taken. Backward Stepwise Regression Analysis has been used to study the impact of these determinants on the performance of the banks. Return on Assets (ROA) has been taken as the dependent variable while other variables as Spread ratio, Provisions and contingencies, Non interest income, Credit/deposit ratio, Operating expense ratio, Profit per employee, Business per employee, Investment/deposit ratio, Capital adequacy ratio, Non performing assets and Type of bank have been controlled in the study. The results show that Spread ratio, Provisions and contingencies, Non interest income, Operating expense ratio, Profit per employee, Investment/deposit ratio and Non performing assets are significant variables in affecting the profitability of banks in the private sector of Indian economy. It is also suggested that if banks concentrate on these variables, they would be able to generate better profitability in the present globalised era.

Keywords

Private Sector Banks, Return on Assets, Spread Ratio, Non Performing Assets
Subscription Login to verify subscription
User
Notifications
Font Size


  • Abreu M and Mendes V (2000), “Commercial Bank Interest Margins and Profitability: Evidence for Some EU Countries", 50th International Atlantic Economic Conference. (www.iaes.org/conferences/past/ charleston_50/prelim_program/index.htm).

  • Afanasieff T, Lhacer P and Nakane M (2002), “The Determinants of Bank Interest Spreads in Brazil ", Banco Central di Brazil Working Papers.

  • Angbazo L (1997), “Commercial Bank Net Interest Margins, Default Risk, Interest-rate Risk, and off-balance sheet Banking", Journal of Banking and Finance, 21: pp 55-87.

  • Athanasoglou P P, Brissimis S N and Delis M D (2005), Bank Specific, Industry-Specific and Macroeconomic Determinants of Bank Profitability, Working Paper 25, Bank of Greece.

  • Barajas A, Steiner R, and Salazar N (1999), “Interest Spreads in Banking in Colombia 1974-96", IMF Staff Papers, 46: pp 196-224.

  • Bashir A (2000). “Assessing the Performance of Islamic Banks: Some Evidence from the Middle East", Paper presented at the ERF 8th meeting in Jordan.

  • Badola B S and Verma R (2006), “Determinants of Profitability of Banks in Indian: A Multivariate Analysis", Delhi Business Review X, 7 (2): pp 79-88.

  • Bashir A (2000), “Determinants of Profitability and Rates of Return Margins in Islamic Banks: Some Evidence from the Middle East," Grambling State University, Mimeo.

  • Berger A (1995), “The Relationship between Capital and Earnings in Banking," Journal of Money, Credit Banking, 27(2): pp 432-456.

  • Demirguc-Kunt A and H Huizinga (1999), “Determinants of Commercial Bank Interest Margins and Profitability: Some International Evidence," World Bank Economic Review, 13: pp 379-408.

  • Gujarati D N (2006), Basic Econometrics, Tata McGraw Hill Education Private Ltd, New Delhi.

  • Guru B J S and Balashanmugam B (2002), “Determinants of Commercial Bank Profitability in Malaysia", University Multimedia Working Papers.

  • Manoj P K (2010), “Determinants of Profitability and Efficiency of Old Private Sector Banks in India with Focus on Banks in Kerala State: An Econometric Study", International Research Journal of Finance and Economics, 47: pp 7-20. (Also available at http://www.eurojournals.com/finance.htm).

  • Molyneux P and Thornton J (1992), “Determinants of European Bank Profitability: A Note," Journal of Banking and Finance, 16( 6): pp 1173-1178.

  • Naceur S B (2003), “The Determinants of the Tunisian Banking Industry Profitability: Panel Evidence," Universite Libre de Tunis Working Papers.

  • Neely M C and Wheelock D C (1997)," Why Does Bank Performance Vary Across States?" Review, Federal Reserve Bank of St. Louis 0: pp 27-38.

  • Singh R K and Chaudhary S (2009), “Profitability Determinants of Banks in India", International Journal of Global Business, 2 (1): pp 163-180.


Abstract Views: 512

PDF Views: 0




  • Determinants of Profitability of Private Sector Banks in India

Abstract Views: 512  |  PDF Views: 0

Authors

Aparna Bhatia
Department of Commerce and Business Management, Guru Nanak Dev University, Amritsar.
Poonam Mahajan
Guru Nanak Dev University College, Narot Jaimal Singh, Pathankot.
Subhash Chander
Department of Commerce and Business Management, Guru Nanak Dev University, Amritsar.

Abstract


As financial intermediaries banks play an important role in the operations of an economy. The paper examines the determinants of profitability in the private sector banks in India for the years 2006-07 to 2009-10. A sample of 23 banks in the private sector has been taken. Backward Stepwise Regression Analysis has been used to study the impact of these determinants on the performance of the banks. Return on Assets (ROA) has been taken as the dependent variable while other variables as Spread ratio, Provisions and contingencies, Non interest income, Credit/deposit ratio, Operating expense ratio, Profit per employee, Business per employee, Investment/deposit ratio, Capital adequacy ratio, Non performing assets and Type of bank have been controlled in the study. The results show that Spread ratio, Provisions and contingencies, Non interest income, Operating expense ratio, Profit per employee, Investment/deposit ratio and Non performing assets are significant variables in affecting the profitability of banks in the private sector of Indian economy. It is also suggested that if banks concentrate on these variables, they would be able to generate better profitability in the present globalised era.

Keywords


Private Sector Banks, Return on Assets, Spread Ratio, Non Performing Assets

References