Empirical Modeling of Profitability of Public Sector Banks in India

The present research paper examines the impact of bank-specific and economy-specific variables on the profitability of public sector banks (PSBs) in India over the period 2005-2015. The paper uses a dynamic panel model suggested by Arellano and Bover (1995) and Blundell and Bond (1998) to examine th...

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Bibliographic Details
Published in:Prajnān (Pune) 2016-07, Vol.45 (2), p.123-141
Main Authors: Kumar, Ashish, Dhingra, Sanjay
Format: Article
Language:English
Subjects:
Banking industry
Banks
Capital assets
Commercial banks
Economics
Financial institutions
GDP
Gross Domestic Product
Growth rate
Interest rates
Liberalization
Macroeconomics
Profitability
Profits
Public sector
Return on assets
Studies
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Summary:The present research paper examines the impact of bank-specific and economy-specific variables on the profitability of public sector banks (PSBs) in India over the period 2005-2015. The paper uses a dynamic panel model suggested by Arellano and Bover (1995) and Blundell and Bond (1998) to examine the impact of bank-specific determinants viz. size, capital adequacy, quality of assets, net interest margin, noninterest income, operational efficiency and macroeconomic variables namely GDP growth rate and inflation on return on assets (ROA). The empirical results explicitly demonstrate that bank-specific and macroeconomic variables affect the variation in the profits of chosen banks over the period of the study. The results of the study are important both for academicians as well as policymakers. The policy implications from the study are that banks must pay attention to the bank-specific determinants and macroeconomic developments to sustain the growth of profitability.
ISSN:0970-8448