TITLE:
Factors Influencing Profitability of Banks in India
AUTHORS:
Bezawada Brahmaiah, Ranajee
KEYWORDS:
Banks Profitability, Internal Factors, External Factors
JOURNAL NAME:
Theoretical Economics Letters,
Vol.8 No.14,
October
24,
2018
ABSTRACT: The paper examines the factors influencing the
profitability of Indian commercial banks considering increased globalization,
intensified competition, and enhanced concentration. The sample is a balanced
panel dataset of 89 banks operating in India for the period 2005 to 2015. We
consider the return on assets (ROA) and the return on equity (ROE) as proxy for
measurement of banks’ profitability. The results indicate that profitability of
banks in India is affected by both internal and external factors. Strength of
equity capital, operational efficiency, ratio of banking sector deposits to the
gross domestic product (GDP), had significantly positive effect on
profitability of banks and credit risk, cost of funds, non-performing assets (NPA)
ratio and consumer price index (CPI) inflation have significantly negative
influence on banks’ profitability while bank size and ratio of priority loans
to total loans do not have any influence on the profitability. The GDP growth
and inflation have significantly negative relation with ROA and inflation has
positive influence on ROE.