The IUP Journal of Applied Economics
Influence of Bank-Specific and Macroeconomic Factors on the Profitability of Indian Commercial Banks

Article Details
Pub. Date : Oct, 2022
Product Name : The IUP Journal of Applied Economics
Product Type : Article
Product Code : IJAE041022
Author Name : Sathish Kotte, Irala Lokanandha Reddy and Srinivas Bolagani
Availability : YES
Subject/Domain : Economics
Download Format : PDF Format
No. of Pages : 18



The study examines the impact of bank-specific and macroeconomic factors on the profitability of Indian scheduled commercial banks. The analysis is based on the panel data of 71 scheduled commercial banks in India for a period of 15 years. Traditionally, banking performance is measured by return on assets, and factors such as bank size, operating efficiency, credit risk, Non-Performing Assets (NPA), Ratio of Interest Income (RII), cost of funds, capital ratio, deposit ratio, ratio of priority sector lending, liquidity and asset management are used as bank-specific factors. GDP, inflation, interest rate, demonetization and financial crisis are used as macroeconomic factors. Linear regression model is used with pooled, fixed and random effect methods. The results show that bank-specific factors such as operating efficiency, NPA and RII have a statistically negative impact on ROA, while asset management has a favorable influence. In terms of the effect of macroeconomic determinants, the results show that GDP, interest rate, demonetization and financial crisis have a negative effect, while inflation is coefficiently negative but has an insignificant impact on ROA.


The financial sector is essential for the growth of a country's economy. Among the various financial institutions, the banking industry is broadly divided into three categories in India: public sector banks, private sector banks and foreign banks. In addition, 80 regional rural banks are operating in India. The banks in the country are monitored and governed by the Reserve Bank of India (RBI). The first bank to be established in India was the Bank of Hindustan (1770) which became defunct in 1832. The State Bank of India, which is now the largest commercial bank in the country, descends from the Bank of Calcutta which was founded in 1806. In 1969, all the major banks in the country were nationalized. The idea was to maximize the profit of public sector banks and make them competitive. After the