Empirical Analysis of Determinants of Profitability of Banks: Evidence from Indian Public Sector Banks

Abstract

The aim of present study is to empirically examine the impact of bank-specific determinants on the profitability of Indian public sector banks. A balanced panel data set comprising 280 observations of 28 Indian public sector banks over the period of ten years from 2006-07 to 2015-16 is used. The relevant financial data are collected from the Capitaline database. Net profit to Total funds is used as proxy for profitability of banks. A fixed effect regression model is built by devising statistical software STATA. The empirical results demonstrate non-uniform effects of selected financial characteristics on banks’ profitability. The results also reveal that deposit ratios are the significant determinants of banks’ profitability while Other Income to Total Income and Interest Income to Total Funds results a significant negative influence on bank performance. The results provide valuable insights to the banks that may assist in sustaining the financial stability in banking sector.