Determinant of Probability of Indian Listed Commercial Bank

This study investigates the determinants of profitability among commercial banks in India over the period from 1999 to 2022, utilizing unbalanced panel data comprising 108 banks. By examining both internal bank-specific characteristics and external macroeconomic factors, we assess how these variables impact profitability across different types of banks. Our findings suggest that liquidity conditions, as measured by the loan-to-asset ratio, do not significantly affect profitability. However, credit risk, represented by the ratio of loan loss provisions to total loans, demonstrates a positive relationship with profitability for foreign and private banks. Diversification has conflicting effects on profitability, with SBI & Associates banks and public banks benefiting from it, while new private banks experience negative impacts. The influence of overhead costs on profitability varies across bank types, positively impacting return on equity for all banks and foreign banks, but negatively affecting return on equity for public banks. Conversely, it positively impacts return on assets for all banks but negatively impacts return on assets for private banks. Capital strength exhibits a negative association with profitability across all banks and a positive association for public banks, with inconclusive results for private banks. Bank size does not show a significant relationship with profitability across all bank types. Regarding macroeconomic factors, while indicators like money supply growth and inflation do not significantly impact return on equity, they positively influence return on assets, albeit with variations across ownership types. In conclusion, this study highlights the complexity of factors influencing bank profitability in India and underscores the importance of tailored management strategies to navigate these complexities effectively.