Impact of Bank-Specific and External Factors on Profitability: An Empirical Study of PSU Banks in India

ABSTRACT

Owing to increased banking regulation and competition, banks are facing challenges to maintain their profitability. This article studies the affect on profitability of banks’ internal factors and external economic factors. The evidence shows that liquidity risk has a significant negative affect on profitability of the PSU banks. Also operational risk and capital efficiency have a significant negative impact on profitability. Return on assets, bank size, and economic growth rate are found to influence profitability negatively; only the affect of the former was statistically significant. Increase in nonperforming assets adversely affects profitability.

KEYWORDS:

• Bank size
• liquidity
• credit risk
• operational efficiency
• macroeconomic factors

Disclosure statement

No potential conflict of interest was reported by the authors.