Factors Determining the Financial Performance of Public Sector Banks in India

Abstract

Now, an attempt is made in this paper to examine the determinants of profitability in Indian public sector banks during the period 2010-11 to 2021-22. For this purpose, a sample of 12 public sector banks listed in NSE & BSE has been taken. Multiple Linear Regression Analysis has been used to investigate the impact of independent variables such as a bank’s asset size (Size), capital adequacy ratio (CAR), cost to income (CTI), net non-performing assets (NPA), credit risk (CrR), credit deposit ratio (CDR),economic growth (GDP) and consumer price index (CPI) inflation on key bank profitability indicators, i.e., return on assets (ROA), return on equity (ROE) and net interest margin (NIM)as dependent variables, separately. The main findings show that bank asset size, cost to income, net non-performing assets, credit deposit ratio, and inflation are negatively related to ROA, ROE, and NIM. Credit risk and economic growth (GDP) have a positive impact on ROA, ROE, and NIM. While the capital adequacy ratio hurt ROA and NIM except for ROE. Even though overall explanatory and macroeconomic factors have a significant 5 percent effect on ROE and NIM as denoted by F-statistics value. Moreover, the banking sector has benefited weakly significantly from both economic growth and the inflationary environment. It is also suggested that if banks concentrate on these variables, they would be able to generate better profitability in the present globalized era. These findings are of value to both academicians and policymakers.