What is it about?
Open Source Software (OSS) to study the determinants of Indian commercial banks profitability. Profitability of Indian banks is measured by three important variables namely, Return on Assets (ROA), Return on Equity (ROE) and Net Interest Margin (NIM). The study also uses a set of independent variables such as bank-specific factors which include bank size, assets quality, capital adequacy, liquidity, operating efficiency, deposits, leverage, assetsmanagement and the number of branches. Pooled, fixed and random effects models and Generalized Method of Moments (GMM) are built on panel data of 10 years for more than 60 commercial banks of India.
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Why is it important?
Our results show that all bank-specific factors, except the number of branches, exhibited significant impacts on profitability as measured by NIM. The findings also show that all macroeconomic determinants used in the study are found to be significant with negative impacts on Indian commercial banks profitability. Furthermore, the results show that bank size, number of branches, assets management ratio and leverage ratio are highly significant variables of profitability in the context of Indian commercial banks as measured by ROA. The results give a better insight into the Indian banking sector and the determinants of its profitability.
Perspectives
This study sought to fill a demanding gap in the existing body of literature of banks on specific and macroeconomic determinants of Indian commercial banks’ profitability by providing a new empirical evidence. The outcomes of the present study have significant contributions to the existing stock of literature by comprehensively clarifying and critically analyzing the current state of Indian commercial banks’ profitability. More specifically, this study provides an evidence of the factors that may affect Indian banks’ profitability during a period ranging from 2008 to 2017. During this period, Indian commercial banks have witnessed several challenges such as a decline in financial performance, the demonetization process that was started in November 2016 and fraud cases that hit some Indian commercial banks. This made the investigation of this topic very important and interesting and provided empirical evidence for bankers and policymakers.
Dr. Eissa A. Al-Homaidi
Aligarh Muslim University
Read the Original
This page is a summary of: Bank-specific and macro-economic determinants of profitability of Indian commercial banks: A panel data approach, Cogent Economics & Finance, November 2018, Taylor & Francis,
DOI: 10.1080/23322039.2018.1548072.
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