Determinants Of Profitability Of Banks In India: A Multivariate Analysis | B.S. Bodla & Richa Verma

Banking Sector Reforms have changed the face of Indian banking industry. The reforms have led to the increase in resource productivity, increasing level of deposits, credits and profitability and decrease in non-performing assets. However, the profitability, which is an important criteria to measure the performance of banks in addition to productivity, financial and operational efficiency, has come under pressure because of changing environment of banking. An efficient management of banking operations aimed at ensuring growth in profits and efficiency requires up-to-date knowledge of all those factors on which the bank?s profit depends. Accordingly, in this paper we have made an attempt to identify the key determinants of profitability of Public Sector Banks in India. The analysis is based on step-wise multivariate regression model used on temporal data from 1991-92 to 2003-04. The study has indicated that the variables such as non-interest income, operating expenses, provision and contingencies and spread have significant relationship with net profits.