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Impact of Bank Efficiency on the Profitability of the Banks in India: An Empirical Analysis Using Panel Data Approach

Author

Listed:
  • Suzan Dsouza

    (Accounting Department, College of Business Administration, American University of the Middle East, Egaila 54200, Kuwait)

  • Mustafa Raza Rabbani

    (Department of Economics and Finance, College of Business Administration, University of Bahrain, Sakhir 32038, Bahrain)

  • Iqbal Thonse Hawaldar

    (Department of Accounting and Finance, College of Business Administration, Kingdom University, Riffa 40434, Bahrain)

  • Ajay Kumar Jain

    (Department of Finance, Westminster International University of Tashkent, Tashkent 100047, Uzbekistan)

Abstract

This study aims to determine the impact of banking efficiency on the profitability of the Indian banking division. The ratios (key variables) used in the study are mentioned by the Reserve Bank of India—RBI (Central bank of India). Through a quantitative approach, pooled panel regression, univariate analysis, correlation, and descriptive statistics models are used by taking annual data of the Indian banking division from 2001 to 2020 available on the Thomson Reuters (Refinitiv) Database. Unbalanced cross-sectional data (panel data) comprising 527 bank-year observations for 33 Indian banks were studied. It was decided to evaluate the impact of efficiency (cost to income ratio and staff expenses to total expenses ratio) on the profitability (return on assets and net interest margin ratio) of the banks from the Indian banking division. The results revealed that the cost to income ratio has a significant negative impact on the bank return on assets and net interest margin ratio. The staff expenses to total expenses ratio has a significant positive impact on the bank return on assets and a positive nonsignificant impact on the bank net interest margin ratio.

Suggested Citation

  • Suzan Dsouza & Mustafa Raza Rabbani & Iqbal Thonse Hawaldar & Ajay Kumar Jain, 2022. "Impact of Bank Efficiency on the Profitability of the Banks in India: An Empirical Analysis Using Panel Data Approach," IJFS, MDPI, vol. 10(4), pages 1-18, October.
    • Handle: RePEc:gam:jijfss:v:10:y:2022:i:4:p:93-:d:933948
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    References listed on IDEAS

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    2. Rezart Demiraj & Suzan Dsouza & Mohammad Abiad, 2022. "Working Capital Management Impact on Profitability: Pre-Pandemic and Pandemic Evidence from the European Automotive Industry," Risks, MDPI, vol. 10(12), pages 1-21, December.
    3. Mohammad Ahsan Uddin & Mohammad Rokibul Hossain, 2024. "Impact of Bank Characteristics and Macroeconomic Factors on Banks’ Profitability: A Study on Emerging Economy," Journal of Scientific Reports, IJSAB International, vol. 7(1), pages 100-116.
    4. Pejman Peykani & Mostafa Sargolzaei & Mohammad Hashem Botshekan & Camelia Oprean-Stan & Amir Takaloo, 2023. "Optimization of Asset and Liability Management of Banks with Minimum Possible Changes," Mathematics, MDPI, vol. 11(12), pages 1-24, June.

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