“IMPACT OF INFLATION ON BANK’S PROFITABILITY” A STUDY ON SELECT BANKS PROFITABILITY

The banking sector of India consists of 26 public sector banks, 20 private banks and 43 foreign banks. The banking sector is merely contributing about 7.7% to India’s GDP. Banking sector has generated employment in the economy for about 1.5 million people. The study focuses on the impact of Inflation on Banks profitability. To evaluate the bank’s profitability some of the determinants like Return on assets, Return on Equity and Net profit is considered. Wholesale price index average has been taken to evaluate the Impact of inflation on banks profitability. Also, there are many external factors that impacts profitability such as GDP, asset management, NPAs, capital adequacy, liquidity ratio. For the study five Pubic sector banks has been considered i.e. State Bank of India, IDBI Bank, Allahabad Bank, Canara Bank, Punjab National Bank for the year 2014 to 2018. From the study it can be concluded that there is negative correlation between inflation and banks profitability which means that if one variable increases other variable decreases. When inflation raises interest rates also raises. Increase in interest rates provide greater opportunity for banks to increase their profits. Meanwhile their cost of funds also increases which can reduce profits. From the study, it can be determined that H0 is accepted and alterative is rejected which means Inflation has no effect on Return on Assets(ROA), Return on Equity (ROE) and Net profit of select public sector banks. Inflation does not affect the profitability of banks. There are several other internal as well as external factors that may affect the profitability of bank. Hence there is no significant association between Inflation and Banks profitability of select public sector banks in India.