Bank-specific factors affecting the profitability of public sector banks in India: A dynamic panel approach

Profitability of commercial banks is always under spotlight because of the immensely important role it plays in affecting country’s economic development as well as the life and living of the country men. Naturally, the factors which might have bearings on its performance assume great significance to banking administration and policy makers. This study desires to identify these factors in case of public sector commercial banks of India. Taking the data of all public sector commercial banks over the period 2000 to 2017, we have applied GMM estimation technique developed by Arellano and Bover, to investigate the bank-specific factors which have influential role in the profitability of Indian banks. Estimation results indicate that banking performance measured in terms of return on assets (ROA) and net interest margin (NIM) is significantly influenced by asset management, operating efficiency, loan quality and employees’ performance. Capital adequacy ratio also has significant contribution on ROA while, asset size leaves no significant impact on ROA and NIM. The results arrived in this study may be used to frame appropriate policy decisions for the development of the public sector banks of India.