Published Online:January 2026
Product Name:The IUP Journal of Accounting Research & Audit Practices
Product Type:Article
Product Code:IJARAP010126
DOI:10.71329/IUPJARAP/2026.25.1.7-29
Author Name:Kaushik Bhattacharjee, Arun Jha and P Bhanu Sireesha
Availability:YES
Subject/Domain:Finance
Download Format:PDF
Pages:7-29
This study looks at what drove bank profits in India from 2005 to 2025. It used 21 years’ data for different bank groups (public sector, private sector, and foreign banks) to study key financial ratios and run a DuPont analysis. This helps track long-term trends in net interest income, noninterest income, operating costs and provisions. Through the DuPont method, the study breaks down return on equity (ROE) to understand what is driving profitability: higher leverage, better use of assets, or stronger cost control? The findings show that foreign banks (FBs) earn more mainly because they manage their funds better and have a wider mix of income sources. On an average, FBs pay much less for their funds—around 154 basis points lower than public banks and 177 basis points lower than private banks. They also make more money from noninterest activities: about 98 basis points more than public banks and 39 basis points more than private banks, when measured against total assets. Using yearly data for 40 banks and a fixed effects model, the study finds that the equity ratio, income mix, and intermediation costs matter the most for profitability. Among economic factors, only inflation (measured by CPI) shows a steady influence. These variables strongly affect return on assets (ROA), ROE, and net interest margin (NIM). The results suggest that things like strong capital levels, diverse income sources, and good cost control play an important role in improving the performance and stability of banks in India.
India’s economy depends a lot on banks, and the banking sector plays a big role in driving growth.1 Because of this, the strength and stability of banks are very important for the country’s long-term development. This link between how well banks perform and how fast the economy grows is also seen in many other emerging countries. Among all the signs of a healthy banking system, profitability stands out as one of the most important. When banks make steady profits, they can raise more capital, handle bad loans better, and support different types of development activities in the economy.