Profitability Of Banks In India Research Articles

Determinant of Probability of Indian Listed Commercial Bank

This study investigates the determinants of profitability among commercial banks in India over the period from 1999 to 2022, utilizing unbalanced panel data comprising 108 banks. By examining both internal bank-specific characteristics and external macroeconomic factors, we assess how these variables impact profitability across different types of banks. Our findings suggest that liquidity conditions, as measured by the loan-to-asset ratio, do not significantly affect profitability. However, credit risk, represented by the ratio of loan loss provisions to total loans, demonstrates a positive relationship with profitability for foreign and private banks. Diversification has conflicting effects on profitability, with SBI & Associates banks and public banks benefiting from it, while new private banks experience negative impacts. The influence of overhead costs on profitability varies across bank types, positively impacting return on equity for all banks and foreign banks, but negatively affecting return on equity for public banks. Conversely, it positively impacts return on assets for all banks but negatively impacts return on assets for private banks. Capital strength exhibits a negative association with profitability across all banks and a positive association for public banks, with inconclusive results for private banks. Bank size does not show a significant relationship with profitability across all bank types. Regarding macroeconomic factors, while indicators like money supply growth and inflation do not significantly impact return on equity, they positively influence return on assets, albeit with variations across ownership types. In conclusion, this study highlights the complexity of factors influencing bank profitability in India and underscores the importance of tailored management strategies to navigate these complexities effectively.

Income Diversification and Bank Profitability in India: Exploring the Importance of Macroeconomic Factors

Income Diversification and Bank Profitability in India: Exploring the Importance of Macroeconomic Factors

Does Basel III – Liquidity Coverage Ratio Affect the Profitability of Indian Public Sector Banks?

The article analyses the interrelation between the Liquidity Coverage Ratio (LCR) and the profitability of Indian public sector banks from March 2015 to March 2022. It uses the panel data technique to explain these relations. Further, this article also looked at the interactive effect of LCR through advances and the interest rate. It has gone through pre- and post-diagnostic checks finalizing the model and variables. The findings of the result surprisingly imply that Basel III regulatory directives like LCR positively impact the bank profitability in India rather than general apprehension about the negative impact. However, the interactive effects of LCR through advances negatively influence the banks’ profitability. Variables such as deposits, Economic Policy Uncertainty (EPU) and Gross Domestic Product (GDP) have no statistically significant relation with banks’ profitability. This article recommends that Basel III guidelines should not be looked at negatively for the performance of banks.

Major Determinants of Bank Profitability in India: A Machine Learning Approach

From reforms and fin-tech revolutions to macro-economic shocks, the Indian banking sector has witnessed rapid changes over the last two decades, which has significant implications for banks’ profitability. Viewing bank profitability from three different dimensions, Net Interest Margins (NIM), Return on Assets (RoA) and Return on Equity (RoE), this study has explored the key determinants with the help of machine learning algorithms. It has used a pooled data set of domestic and commercial banks covering 2005–2021. As a dependent variable, profitability by each measure (NIM, RoA and RoE) is reclassified into three categories, above average, average and below average, based on their quartiles. Twenty-one explanatory variables comprising bank-specific, macroeconomic and policy variables are chosen after due validation using feature selection methodology and multicollinearity check. The random forest (RF) classification algorithm is executed using the CARET package in R. The results obtained from feature selection are corroborated with the RF classification findings. The results are robust and give clear-cut visibility of unique and common factors influencing three profitability measures at varying levels. The classification estimates suggest that the bank-specific variables are major determinants of NIM, while macroeconomic and policy variables are the key determinants of RoA and RoE. Further, the results also suggest that the ratio of non-performing assets to total assets and business per employee are two such bank-specific determinants that play an important role in all three dimensions of profitability. Thus, recapitalization and automation will play an important role in bank profitability.

Impact of Country Level Corporate Governance on Profitability of Banks in India

In the recent years, there has been an uptick in the level of concern over corporate governance. This is mostly attributable to the widespread collapse of major corporations in both the local and international arenas. Both proactive and reactive actions have been adopted by governments in reaction to the growing number of instances of financial crisis in an effort to achieve stability in the sector. Nevertheless, the stability of banking operations continuesto be questionable despite the interventionist responsibilities played by the government. The primary objective of this research is to investigate the effect that corporate governance at the national level has on the profitability of Indian banks using a representative sample of 33financial institutions, including 21private and 12 public banks. Descriptive statistics, correlation analysis, and regression analysis of two-way variable intercept random effect model, and robustness checks including robust regression are utilized in the study. The purpose of study is to assess; via the use of empirical research methods, the impact that good corporate governance has on the profitability of the banking sector in India. Return on Equity (ROE), Return on Assets (ROA)and Net Interest Margin (NIM)were accepted as proxies for profitability in the banking industry.The empirical evidence presented in the paper demonstrates that good corporate governance has a considerable influence on the profit performance of the Indian banking sector. In the context of India's status as a developing economy, this study offers new research that establishes a relationship between country-level corporate governance and the profitability of banking institutions.

A Study on the Investors’ Perception Related to M&A on Shareholders’ Wealth and Profitability of Banks in India

A Study on the Investors’ Perception Related to M&A on Shareholders’ Wealth and Profitability of Banks in India

On Profitability Drivers for Indian Banks: A Dynamic Panel data Analysis

The purpose of this study is to determine the factors that influence bank profitability in India, including bank-specific, banking industry, and macroeconomic factors. The article uses data from Indian public and private sector banks for the years 2006–2007 through 2012–2013. More than 90% of all scheduled commercial bank business in India is handled by these two banks. This study employs dynamic panel data analysis. Bank specific characteristics, banking industry factors, and economic factors are dependent variables, while return on average assets and return on equity are independent variables. Nonperforming loans and the cost-to-income ratio are two bank-specific features that reduce bank profitability, whereas diversification attempts have little effect. Keywords Factors unique to each bank Factors affecting the banking industry macroeconomic variables Diversification of Profitability a debt that is not working well (NPL) Factors unique to each bank.

DOES BANK EFFICIENCY ENHANCE BANK PERFORMANCE? EMPIRICAL EVIDENCE FROM INDIAN BANKING

This paper examines the effects of cost, revenue, profit efficiency, and stability inefficiency on bank profitability in India over the period 1997 to 2017. Additionally, this study examines the effect of efficiency on profitability for banks according to their ownership and for periods with (and without) the global financial crisis. The cost, revenue, and profit efficiency scores for 70 banks in India are estimated using stochastic frontier analysis. Our key findings are as follows. First, we find that cost, revenue and profit efficiencies positively influence the profitability conditions of Indian banks. Second, banks that are inefficient adversely influence bank performance, although the global financial crisis did not seem to impact the efficiency-profitability relationship. Finally, we find that bank ownership matters for the association between its efficiency and performance.

Assessing the effects of cost, revenue and profit efficiency on bank performance: empirical evidence from Indian banking

PurposeThis paper aims to investigate the effects of cost, revenue and profit efficiency on bank profitability in an emerging economy such as India over the period 1997 to 2017. Additionally, this study examines the effect of efficiency on profitability across different ownership groups for a panel of 70 Indian commercial banks.Design/methodology/approachIn the first stage, using stochastic frontier analysis, we estimate the efficiency scores of cost, revenue and profit over the examined period. In the second stage, this study uses the two-step system generalized-method of moments dynamic panel approach to investigate the impact of several efficiency measures on bank profitability.FindingsResults estimated through and system generalized-method of moments indicate that a higher level of cost, revenue and efficiency significantly improves India's bank profitability. Regarding ownership groups, this study finds that the public sector banks are most cost-efficient compared to private and foreign banks. Other bank-specific, macroeconomic and institutional variables have played a significant role in determining bank profitability.Practical implicationsThe findings of the study extend some important policy implications. In light of the rapid decline in bank profitability, banks should focus on increasing the efficiency of their operations. Improvement in profit, cost and revenue efficiency can ameliorate bank performance significantly. Profit efficiency that takes into account both cost and revenue efficiency should be maintained reasonably to prevent the declining pattern of bank profitability that the industry has witnessed over the years.Originality/valueTo the best of the author's knowledge, this study is a fresh piece of research that fulfils an urgent need of investigating the dynamics between bank efficiency and bank profitability in India. In an emerging economy like India, where the banking sector has witnessed substantial structural transformations over the past two decades, such study demands an immediate empirical investigation.

An empirical investigation of the effects of competition, efficiency and risk-taking on profitability: An application in Indian banking

The study investigates whether changes in bank competition, efficiency, and risk-taking affect the profitability of Indian commercial banks during 1996−2016. While assessing the determinants of profitability, this study considers a wide range of bank-specific, macroeconomic, and institutional factors that explain the variations in bank profitability. Results estimated through the two-step system GMM indicate that a higher level of bank competition deteriorates bank profitability in Indian banking. Regarding risk-taking, results reveal that the growing incidence of credit risk hampers bank profitability for the whole banking industry and across ownerships. However, higher levels of profit and cost efficiency are positively associated with bank performance. Other bank-specific, macroeconomic, and institutional variables appear to have influenced bank profitability in India. The joint effect of competition and efficiency (or risk-taking) has further been examined in this study.

Factors influencing the profitability of banks in India and China

ABSTRACT The study investigates the factors influencing profitability of banks in India and China. Our results suggest that credit quality, bank size, and cost management are the key factors behind the profitability of banks in India and China. The loan to deposit ratio of the banks is also important. It has a positive impact on the profitability of banks in China but a negative impact on the profitability of banks in India.

An empirical examination of the impact of country‐level corporate governance on profitability of Indian banks

AbstractThe main aim of the present study is to examine the impact of country‐level corporate governance on the profitability of Indian banks using a sample of 61 banks that is, 42 private and 19 public banks. The study employs descriptive statistics, correlation analysis, regression analysis of two‐way variable intercept random effect model, and robustness checks including robust regression, Generalized Methods of Moments, and Panel Correction Standard Error. The results reveal that country‐level corporate governance has a significant impact on the profitability of Indian banks. Private banks demonstrate better performance over public banks and the effect of country‐level governance on the profitability of private banks is positive and it is better than public banks. Further, the results show that demonetisation has a significant negative impact on the profitability of Indian banks as measured by Return on Assets and Return on Equity, but it also has a significant positive effect in the case of Net Interest Margin. The findings of the current study have considerable implications for regulators, policymakers, bankers, analysts, and academicians. Regulations and several policy measures could be introduced to improve the profitability of Indian banks. To promote greater transparency, better accountability, strong rule of law, and corporate governance, corruption must be eliminated to enhance higher profitability of Indian banks. This paper presents novel evidence linking country‐level corporate governance to the profitability of banks in the context of India, as an emerging economy. Therefore, it bridges an existing gap in the body of literature on the profitability of banks in India.

Determinants of bank profitability in India: applications of count data models

This paper employs count data models, namely Poisson and negative binomial regression to investigate whether macroeconomic factors increase or decrease the count of number of 18 Indian public sector banks in losses. The analysis is based on quarterly data from Q3 2009 to Q4 2019. This paper also considers one and two lagged macroeconomic factors. The results provide a new perspective for understanding the determinants of bank profitability. The contemporary, one and two lagged gross domestic product (GDP) growth rate and inflation increase the count of number of banks in losses. Further, the count of number of banks in losses surges with increase in contemporary and one lagged index of industrial production (IIP). However, one and two lagged exchange rates are significant to shrink the count of number of banks in losses. This study enables banks and policy makers to deliberate on the macroeconomic determinants considered for this study.

"Determinants of Bank Profitability in India: Applications of Count Data Models"

This paper employs count data models, namely Poisson and negative binomial regression to investigate whether macroeconomic factors increase or decrease the count of number of 18 Indian public sector banks in losses. The analysis is based on quarterly data from Q3 2009 to Q4 2019. This paper also considers one and two lagged macroeconomic factors. The results provide a new perspective for understanding the determinants of bank profitability. The contemporary, one and two lagged gross domestic product (GDP) growth rate and inflation increase the count of number of banks in losses. Further, the count of number of banks in losses surges with increase in contemporary and one lagged index of industrial production (IIP). However, one and two lagged exchange rates are significant to shrink the count of number of banks in losses. This study enables banks and policy makers to deliberate on the macroeconomic determinants considered for this study.

Basel III capital regulations and bank profitability

AbstractThis study models the impact of new capital regulations proposed under Basel III framework on bank profitability in India by constructing a stylized representative bank's financial statement. It shows that, with an increase in the capital ratio in the context of new capital regulations, the banks tend to experience a rise in interest income. The results indicate that in the case of scheduled commercial banks, assuming that RWAs are unchanged, for 1‐percentage point increase in capital ratio, interest income would rise by 17 percentage points and would go up to an extent of 62 percentage points for six‐percentage‐point increase assuming that the risk‐weighted assets are unchanged. It also provides the estimations for different groups of banks and the scenarios of changes in the risk‐weighted assets, and changes in the capital ratios.

Factors Influencing Profitability of Banks in India

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.

Profitability drivers for Indian banks: a dynamic panel data analysis

The study aims to find the factors such as bank specific factors, banking industry factors and macroeconomic factors that affect bank profitability in India. The paper employs the data from Indian Public sector and Indian private sector banks for the period from 2006–2007 to 2012–2013. Both these banks contribute to more than 90% of total business of scheduled commercial banks in India. The study applies the dynamic panel data analysis. The dependent variables include return on average assets and return on equity, and independent variables include bank specific factors, banking industry factors, and economic factors. Among the bank specific factors, non performing loans and cost to income ratio negatively affects the bank profitability, and diversification measures do not affect the bank profitability.

Bank characteristics, ownership and profitability of commercial banks: panel evidence from India

Despite its importance, research on Indian bank profitability is sparse and there is little conclusive evidence on what internal factors lead to higher profitability. This paper aims at identifying significant bank-specific determinants of commercial bank profitability in India. Using balanced panel data of 73 banks (26 public sector banks, 20 private banks and 27 foreign banks) comprising of 584 observations during 2004-05 to 2012-13, regression results reveal that net NPA has a significant negative impact on profitability for the three bank types. The impact of CRAR, though positive, on bank profitability is insignificant in all the three bank types. The remaining variables vary in their impact, relation to profitability and significance. Analysis also shows that Indian banks are witnessing lower and declining profitability than foreign banks. Internal factors are under the control of management and thus, the results of the present study are expected to be useful to various stakeholders of banks in India through useful implications.

Productivity and profitability of public sector banks in India: a multi-component DEA approach

Productivity and profitability of public sector banks in India: a multi-component DEA approach

Productivity and profitability of public sector banks in India: a multi-component DEA approach

The banking sector in India underwent a liberalisation and globalisation process in 1990s, which led to reforms in banking sector, changes in their structure and beginning of competitive environment. For survival, each bank is forced to inspect its performance and to identify improvement measures to gain further competitive advantages. For valid performance evaluation of banks, we employ a multi-component data envelopment analysis (DEA) approach. This paper seeks to measure the multi-component performance analysis of public sector banks (PuSBs) in India for the period 2008-2013. Each bank consists of two components: productivity and profitability. The empirical results show that major inefficiency lies in the productivity phase as compared to profitability phase. Sensitivity analysis validates the use of multi-component DEA instead of DEA. The findings of the study are quite useful for policy makers to identify PuSBs' efficiency, weakness and directions for improvement in either productivity phase or profitability phase or both.