Factors Determining the Financial Performance of Public Sector Banks in India

This paper examines the determinants of profitability in Indian public sector banks during 2010-11 to 2021-22 using a sample of 12 public sector banks listed on NSE & BSE. Multiple linear regression is employed to assess the impact of bank-specific factors—asset size (Size), capital adequacy ratio (CAR), cost to income (CTI), net non-performing assets (NPA), credit risk (CrR), credit-deposit ratio (CDR)—and macroeconomic factors—economic growth (GDP) and CPI inflation—on profitability indicators: return on assets (ROA), return on equity (ROE), and net interest margin (NIM). Findings indicate that bank size, cost to income, non-performing assets, credit-deposit ratio, and inflation are negatively related to ROA, ROE, and NIM. Credit risk and GDP growth have a positive impact on ROA, ROE, and NIM. CAR adversely affects ROA and NIM but is positive for ROE. Overall, explanatory and macroeconomic factors have a significant 5 percent effect on ROE and NIM (per F-statistics), while effects on ROA are not statistically significant. The sector appears to benefit weakly from both economic growth and inflation. Focusing on these variables can enhance profitability; results are useful to academicians and policymakers.