Determinants of profitability: a study of selected public sector and private sector banks in India

The banking sector is considered to be an important source of financing for most businesses. In a developing economy, the role of banks is more formative and purposeful than in the developed one. The strength of economy of any country basically depends on the strength and efficiency of financial system, which, in turn, depends upon a sound banking system. The main objective of the study to know the determinants of profitability of selected Indian banks. In order to access and evaluate the profitability of selected banks in India, the relationship between financial ratios of the different banks have been studied using statistical techniques such as Correlation Analysis, Factor Analysis and Multiple Regression technique. The study shows that the major determinants of profitability of the selected banks differ for each bank and have been identified separately for each bank. Also the most commonly influencing factors affecting profitability of the banks have been identified using Factor Analysis. The result shows that Overall Business productivity is having significant effect in Public Sector Banks whereas Profitability is having significant effect in Private Sector Banks.