Influence of Bank-Specific and Macroeconomic Factors on the Profitability of Indian Commercial Banks.

The study examines the impact of bank-specific and macroeconomic factors on the profitability of Indian scheduled commercial banks. The analysis is based on the panel data of 71 scheduled commercial banks in India for a period of 15 years. Traditionally, banking performance is measured by return on assets, and factors such as bank size, operating efficiency, credit risk, Non-Performing Assets (NPA), Ratio of Interest Income (RII), cost of funds, capital ratio, deposit ratio, ratio of priority sector lending, liquidity and asset management are used as bank-specific factors. GDP, inflation, interest rate, demonetization and financial crisis are used as macroeconomic factors. Linear regression model is used with pooled, fixed and random effect methods. The results show that bank-specific factors such as operating efficiency, NPA and RII have a statistically negative impact on ROA, while asset management has a favorable influence. In terms of the effect of macroeconomic determinants, the results show that GDP, interest rate, demonetization and financial crisis have a negative effect, while inflation is coefficiently negative but has an insignificant impact on ROA. [ABSTRACT FROM AUTHOR]