Impact of Determinants of Profitability Ratios among Private, Public and Foreign Banks in India

Abstract

Purpose: The paper endeavours to examine variables as determinants of profitability margin ratios of private sector bank, public sector bank and foreign sector bank groups in India. The purpose of the study is to explore the association of ROADV, ROI, ROA and ROE with several variables. The paper intends to identify the differential impacts of determinants on exploratory variables of individual group of banks. Methodology: The study has regressed four profitability measures viz., ROADV, ROI, ROA and ROE on selected independent variables that measures Assets-Deposit ratio, Loans-Advances ratio, Income-Assets ratio and Cost of debts. Banking information from year 2005 to 2019 of all scheduled commercial banks in India was retrieved from DBIE of RBI. Panel data analysis, fixed effect model is applied to analyse impact of determinants on profitability margin ratios and fixed effects of bank groups. Multicollinearity and Heteroscadasticity is diagnosed to check the fitness of model. Findings: The fixed effects analysis indicated all models were significant. The variables CAD, PSATA, NIM and COB have significant with ROE. The variables CAD, PSATA, NIM and COB have significant relation with ROA. The study variables CD, TLTA NIM and COD have significant relation with ROI. The variable NIM is significant to all three profitability margin ratios. Out of all fixed effects, ROE had highest value in all the three bank groups and the private bank groups had the highest ROE individual effect.

Keywords: Profitability, ROE, ROI, ROA, ROADV, Bank, India, Panel Data

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