Factors Affecting Bank Profitability- An Empirical Study

Abstract

Profit earning is considered essential not only for the survival, expansion and diversification over a long period of time but also to contribute towards the objectives for the welfare of the societv. Profit is the engine that drives the enterprise. Profitability is one of the major criteria for evaluating the performance of a bank. This paper gives an insight into the profitability area of four groups namely Nationalised Banks group, State Bank of India and its Associates group, Public Sector Banks group and New Private Sector Banks group through factor analysis. In the study twelve variables ( ratios in percentage) have been selected for a period of five years for the analysis. To eliminate the effect of homogeneousness factor analysis has been applied for the reduction of variables which are most significant among the twelve and are affecting the profitability of banks of various groups. The present paper is organized into five sections. The first section is introductory in nature. The second section deals with review of literature. The third section describes the objectives, hypothesis and research methodology. The fourth section deals with the factors affecting the profitability of different bank groups through factor analysis and the last section concludes the paper along with suggestions.