Determinants of indian commercial bank profitability Essay

Determinants of indian commercial bank profitability - Essay Example A profitable banking system is able to cope up with different kind of negative shocks that an economy may get from different directions. It also brings a greater account of stability in the financial system of the economy. The determinants of profitability of banks, particularly commercial banks, have now therefore been drawing interest of academic research to an increasing extent. (Leeladhar, 2005; Ram Mohan; 2002) Indian banking sector is one of the largest industrial sectors in the country. Prior to 1990, Indian banking industry was operating in the country in a very comfortable environment. The degree of competition was not very high. However, with the initiation of economic reform, which banking reform was a part of, the whole banking system of the country had been pushed into the pool of extreme competition. Particularly after the starting of new millennium, the banking industry of the country started to face more and more challenges. In the present time the activity of banking can be characterized as the activity operating in a vast horizon together with high risk factor and intense competition. (Pandey, 2002; Rishi and Saxena, 2004; Ram Mohan; 2002) Therefore, profitability of the banks is a very vital factor for any bank, private or public, to ensure efficient performance and for survival. Hence the determinants of the profitability are also of great importance to the management as well as the researchers who are interested in doing research in the banking area. In the international sphere, most of the researches on the bank profitability, like the works of Molyneux and Thornton (1992), Goddard et al (2004), Short (1979), etc. basically used some linear model of regression to find out the effect of different factors that are expected to be important determinants of the profitability of the banks. These researches show the possibility of conducting meaningful study of bank profitability. There,