Determinants Of Profitability of Public Sector Banks By An Empirical Estimation of Profit Function Models

The present work is an attempt to analyze the profitability and its determinants in banking sector in India. Profitability in the bank is a function of several variables that may be called as different determination of profitability. Now the question arises what are the factors that contribute to the improvement in profitability and mainly what are the factors responsible for deterioration in profitability of banks. Therefore, an attempt has been made in this study to estimate the impact of selected factors on bank profitability. Therefore, State Bank of India was chosen to critically examine the determinants of profitability of the banks for the present study. An empirical estimation of profit shows that credit deposit ratio, NPA as percentage to net advances, provisions and contingencies, operating expenses and business per employee are the significant determinants of profitability of SBI during the study period. To conclude, banking industry in the new millennium is never going to be like what it was in the last century. Banks in India have marched ahead during the post-banking sector reforms period in fostering economic growth of the country and have shown tremendous resilience and vibrancy in their strategies, processes and operating to remain competitive in the globalized environment.