Significance of Bank Specific and Macroeconomic Determinants on Performance of Indian Private Sector Banks

Parvesh Kumar Aspal, Sanjeev Dhawan and Afroze Nazneen
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Parvesh Kumar Aspal: Department of Finance and Accounts, Punjab Technical University, Kapurthala, Punjab, India,
Sanjeev Dhawan: Department of Economics, DAV College, Jalandhar, Punjab, India,
Afroze Nazneen: College of Business, University of Jeddah, Jeddah, Saudi Arabia.

International Journal of Economics and Financial Issues, 2019, vol. 9, issue 2, 168-174

Abstract: A sound financial system has vital influence on the economic development of a country. Banking system constitutes an important component of the financial system of the country; therefore, the economic importance of banks may not be underestimated. Performance evaluation of the banking system is an effective measure and indicator to check the strength of financial system of an economy. The overall objective of the present study was to explore the influence of bank specific factors and macroeconomic factors on the performance of private sector banks in India. To examine the effect of external or macroeconomic factors, growth rate of GDP and average annual inflation rate were considered. For the analysis, seven year panel data of 20 private sector banks was analyzed using linear multiple regression model. The financial performance of banks was expressed by Return on Assets variable. Using multiple regression technique the analysis of sample data for the time period 2008-2014 revealed that except capital adequacy ratio variable all other bank specific variables (Asset Quality, Management Efficiency, Earning Quality and Liquidity) and macroeconomic variable gross domestic product had significantly influenced the financial performance of sample banks in India and inflation was statistically insignificant in case of its effect on return on assets. The implications of the study revealed that inspite of optimum capital adequacy ratio maintained by private sector banks, the other variables related with management and governance of banks had significant effect on the financial performance of the banks.

Keywords: Capital Adequacy Ratio; Asset Quality; Management Efficiency; Earning Quality; Liquidity; GDP; Inflation (search for similar items in EconPapers)
JEL-codes: G21 G24 G28 (search for similar items in EconPapers)
Date: 2019
References: View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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