Modelling profitability of Indian banks
AbstractThis paper identifies the key determinants of profitability of Indian banks. It integrates the macroeconomic environment and industry level variables of India for predicting profitability of Indian banks. A simultaneous equation system has been formulated to derive the estimates of net interest income (NII) and Credit for the banking system as a whole. Net interest income as well as efficiency ratio have significant role in determining profitability in Indian banking scenario. The Net interest income reacts inversely to bond yields and positively to credit. This stems from the inverse relationship of credit demand to bond yields and positive relationship of GDP with credit creation. Further, Deposit mix (higher share of low cost deposit in the total deposits) has favourable impact on NII%.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 31156.
Date of creation: 10 May 2011
Date of revision:
Profitability; Net Interest Income; GDP; Interest Rate; Efficiency Ratio;
Find related papers by JEL classification:
- G2 - Financial Economics - - Financial Institutions and Services
- C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
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