The factors affecting Bank’s Profitability:...

The factors affecting Bank’s Profitability: A study of Selected Private and Public Sector Banks

Author Name : Jasleen Kaur, Dr. Harpreet Kaur

ABSTRACT

This research paper focuses on the factors influencing the profitability of Indian commercial banks in the ambience of increasing globalization, tough competition and increased concentration. The sample is a balanced panel data set of 89 banks operating in India from 2005 to 2015. We use return on assets (ROA) and return on equity (ROE) as proxies for measuring bank profitability. The results show that the profitability of Indian banks is affected by internal and external factors. Equity capital intensity, operating efficiency, the ratio of bank deposits to gross domestic product (GDP) have an effect on bank profitability and credit risk, cost of capital, non-performing asset ratio (NPA) and consumer price index (CPI inflation) have a significant negative impact on the profitability of banks while the size of banks and the proportion of priority loans to total loans do not have an impact on profitability. GDP growth and inflation are significantly negatively correlated with ROA, and inflation has a positive effect on ROE.

Keywords: Bank’s Profitability, Internal Factors, External Factors