Determinants of Commercial Banks Profit Ability in India: A Dynamic Panel Data Model Approach

The present study explores the determinants of profitability of commercial banks in India by employing Arellano and Bond (1991) dynamic panel data model for the unbalanced panel data of 87 banks for the period 1992-2006. The study used net interest margin and returns on assets as two alternatives for measuring profitability of banks. Empirical results reveal that profitability of banks is not only determined by its own characters but also by the industry specific and macroeconomic factors. Further, the study also finds the role of ownership and political factors in determining the profitability of banks in India. However, the determinants of profitability significantly varied across the groups.