What Influences ROA of the Bank Nifty?

Great Lakes Herald, September 2019, Vol 13, Issue No.2

14 Pages Posted: 6 Mar 2019 Last revised: 7 Jan 2020

See all articles by Rajveer Rawlin

Rajveer Rawlin

Independent; Ramaiah Institute of Management

Ramaswamy Shanmugam

PSG College of Technology - PSG Institute of Management

Poojitha Elango

Ramaiah Institute of Management

Date Written: February 13, 2019

Abstract

Banking stocks have been selling off of late. Lingering asset quality issues that have plagued the banking sector over the past five years have come to the fore front following a slowing economy and a weakening Rupee. The bank nifty index is a key index comprising of the largest bank stocks in India. It would prove useful to understand the key drivers of profitability of the components of this index which would throw light on the profitability of the banking sector at large. This paper studied the influence of key internal determinants on the profitability of bank nifty components over a ten-year period form 2007-2016. The profitability measure chosen was the Return on Assets. The internal determinants chosen for the study comprised of the logarithm of bank size as measured by stock market capitalization, a key lending measure the deposit/credit ratio, income measures that include interest income/average working funds and non-interest income/average working funds, a key productivity measure in business per employee, a key asset quality measure the %Net NPA and a measure of capital adequacy the capital adequacy ratio. Asset quality, capital adequacy, income measures and bank size proved to be the important drivers of profitability of bank nifty components. Stakeholders of banks should focus on these determinants as they seek to understand the rapidly evolving Indian banking landscape.

Keywords: Bank Profitability, Determinants, Indian Banking Sector, Market Capitalization, NPA, Capital Adequacy

JEL Classification: G00, G20, G21, P34

Suggested Citation

Rawlin, Rajveer and Rawlin, Rajveer and Shanmugam, Ramaswamy and Elango, Poojitha, What Influences ROA of the Bank Nifty? (February 13, 2019). Great Lakes Herald, September 2019, Vol 13, Issue No.2, Available at SSRN: https://ssrn.com/abstract=3334846

Rajveer Rawlin (Contact Author)

Ramaiah Institute of Management ( email )

193 New BEL Road MSRIT Post
MS Ramaiah Nagar
Bangalore, Karnataka 560054
India

HOME PAGE: http://https://rajveersmarketviews.blogspot.com/

Independent ( email )

Ramaswamy Shanmugam

PSG College of Technology - PSG Institute of Management ( email )

Coimbatore, Tamil Nadu 641004
India

Poojitha Elango

Ramaiah Institute of Management ( email )

MSRIT Post Mathikere
New BEL Road
Bangalore, IN 560054
India

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