Determinants of Profitability of Listed Commercial Banks in India

Doctoral Thesis / Dissertation , 2019 , 250 Pages , Grade: 1

Business economics - Banking, Stock Exchanges, Insurance, Accounting

This study seeks to understand the impact of a series of key internal determinants of the profitability of listed commercial banks in India. Following are the research questions raised in this regard: Are there differences in key performance measures of private and public sector banks? Does the size of the bank affect bank profitability? Does the bank’s lending activity and income generation capability affect its profitability? Does the productivity of the bank impact its profitability? Does the bank’s asset quality and capital adequacy affect its profitability? Can bank profitability be forecasted from determinants?

The banking industry in India is diverse in nature. There are more than sixty listed commercial banks in India. These include banks in the public and private sector and the banks are of varying size and profitability levels. As noted early, the Indian banking system is faced with severe asset quality issues. The banking system has been flooded with non-performing assets which have significantly eroded the bank margins. Recent adverse developments in the banking sector such as lending scams and questionable advances to troubled segments of the economy have dominated the financial press. While this being so, this research is aimed at examining the contributing factors of profitability in banks.

Key measures of bank profitability include the return of assets, return on equity and net interest margin. There are several possible drivers of bank profitability. These include asset quality, capital adequacy, liquidity, productivity and income. While several studies till date have looked at key determinants of bank profitability, very few studies have compared the effect of key determinants for a larger cross section of banks that represent the banking sector in India as a whole. Hence an attempt has been made in this study to know the key drivers of profitability of the banking sector. The study also looks at the similarities or the differences of the influence of selected determinants on profitability measures across the sample of banks selected for research. This study also compares the key drivers of bank profitability for public and private sector banks and an attempt is made to develop models to forecast bank profitability from key determinants.

Table of Contents

INTRODUCTION

1.1 Introduction
1.2 Statement of the Problem
1.3 Research Questions
1.4 Objectives of the Study
1.5 Research Methodology
1.6 Scope of the Study
1.7 Significance of the Study
1.8 Limitations of the Study
1.9 Chapter Scheme

References

BANKING SECTOR IN INDIA - A REVIEW

2.1 Origin of Banking
2.2 Banking in India
2.2.1 The Pre-Independence Phase
2.2.2 The Post-Independence Phase
2.3 Classification of Banks
2.3.1 The Reserve Bank of India
2.3.2 Scheduled Banks
2.3.3 Unscheduled Banks
2.3.4 Commercial Banks
2.3.5 Co-operative Banks
2.4 Function of Banks
2.4.1 Primary Functions
2.4.2 Secondary Functions:
2.5 Key Bank Performance Measures
2.5.1 The Credit Deposit Ratio
2.5.2 The Investment Deposit Ratio
2.5.3 Other Income to Total Income Ratio
2.5.4 Operating Expenses to Total Income Ratio
2.5.5 Interest Income to Total Funds Ratio
2.5.6 Interest Expended to Total Funds Ratio
2.5.7 Net Profit to Total Funds Ratio
2.6 Rating Frame Work for Banks
2.6.1 CAMEL Rating
2.7 Risks Faced by Banks
2.7.1 Credit Risk
2.7.2 Market Risk
2.7.3 Operational Risk
2.7.4 Liquidity Risk
2.7.5 Business Risk
2.7.6 Systemic Risk
2.8 Banking Regulations and Regulatory Requirements
2.8.1 Cash Reserve Ratio (CRR) and Statutory Liquid Ratio (SLR)
2.8.2 Basel III Norms
2.9 Recent Trends in Indian Banking
2.10 Measures of Bank Profitability
2.10.1 Return on Assets (ROA)
2.10.2 Return on Equity (ROE)
2.10.3 Net Interest Margin (NIM)
2.11 Determinants of Bank Profitability
2.12 Current Scenario in Indian Banking
2.12.1 Asset Quality
2.12.2 Percentage Share in Total Credit
2.12.3 Growth in Advances
2.12.4 Percentage Share in Total Assets and Profits
2.13 Operational Definitions

REVIEW OF LITERATURE

3.1 Studies in the Global Context
3.2 Studies in the Indian Context
3.3 Summary of Key Determinants of Profitability and Profitability Measures used in Select Research Studies
3.4 Conclusion

RESEARCH METHODOLOGY

4.1 Conceptual Frame Work of the Study
4.2 Research Design
4.2.1 Variables Selected
4.2.2 Development of Working Hypothesis
4.2.3 Sample Design
4.2.4 Collection of Data
4.2.5 Data Analysis
4.3 Findings Suggestions and Conclusion
4.4 Bibliography

ANALYSIS OF DATA

5.1 Test for Normality
5.2 Analysis of Key Indicators of Bank Performance
5.3 Impact of Bank Size, Lending Measures and Income Measures on Bank Profitability
5.4 Impact of Employee Productivity on Bank Profitability
5.5 Impact of Capital Adequacy and Asset Quality on Bank Profitability
5.6 Summary of Analysis
5.7 Forecasting
5.7.1 Model Fitting

FINDINGS AND CONCLUSION

6.1 Summary
6.2 Findings
6.3 Implications of the Study
6.3.1 Implications for Bankers
6.3.2 Implications for Investors
6.3.3 Implications for Regulators
6.4 Scope for Future Research
6.5 Conclusion

Bibliography

Annexures

Summary of Publications and Citations

Research Paper Publication

• College: Bharathiar University
• Grade: 1
• Author: Rajveer Rawlin (Author)
• Publication Year: 2019
• Pages: 250
• Catalog Number: V510384
• ISBN (eBook): 9783346078483
• ISBN (Book): 9783346078490
• Language: English
• Tags: determinants, profitability, listed, commercial, banks, india