A Study of Factors Affecting Growth of Banks Operating in India

This study investigates the determinants of profitability of 10 Indian commercial banks 5 of public and 5 of private sector banks, from the period of 2010 to 2014. The banks growth is depending on its profitability and other variables of size, types of assets, financial structure, revenue diversification and other independent variables. These variables may need to exercise greater control in order to maximize profits and/or minimize costs. A well-capitalised bank is perceived to be of lower risk and such an advantage will be translated into higher profitability. On the other hand, the asset quality, as measured by the loan-loss provisions, affects the performance of banks adversely. In addition, banks with a large retail deposit-taking network do not achieve a level of profitability higher than those with a smaller network. This study examines the impact of these characteristics as well as macroeconomic and financial structure variables on the performance and importance of profitability of the Indian banking industry. This paper presents the reviews the literature on bank performance studies and classifies the bank profitability determinants. The second part of the paper quantifies how internal determinants and external factors contribute to the performance of selected Indian Banks. Finally, Size and Assets Structure are the two variables which exhibit a significant relationship with banks’ Profitability.