A study of factors affecting interest rate spread with special reference to Indian Public Sector Banks

A difference or spread between two related interest rates occurs in many types of business or finance transactions. In banks as well spread is a difference between the interest expense paid to the depositors and the interest income received form customers of bank. It is very important to determine the interest spread of bank as the major portion of bank's profit consists of net interest earned. In this paper an attempt has been made to identify the major factors affecting interest rate spread, in Indian public sector banks and impact of each considered factor on interest rate spread has been also analysed. The tools and techniques used in this paper are ADF test, correlation test, least square regression model and residual analysis etc. Through this paper, an attempt has also been made to suggest some robust factors affecting interest rate spread of public sector banks operating in India.