Proceedings of 31st International Business Research Conference
27 - 29 July 2015, Ryerson University, Toronto, Canada, ISBN: 978-1-922069-80-1
Influence of Bank Specific and Macroeconomic Factors on
Financial Performance of Indian Banks: A Case Study of Public
Sector Banks
Sanjeev Dhawan * and Parvesh Kumar Aspal **
A sound financial system has vital influence on the rapid growth and economic development of a country.
Banking system constitutes an important component of the financial system and its performance evaluation is
an effective measure to check the strength of an economy. The overall objective of the present study was to
explore the influence of bank specific factors and macroeconomic factors on the performance of public sector
banks in India. The bank specific factors include the variables which were suggested in the CAMEL model viz.
Capital Adequacy, Asset Quality, Management Efficiency, Earning Quality and Liquidity. To examine the
effect of external or macroeconomic factors, growth rate of GDP and average annual inflation rate were
considered. For the analysis, eight year panel data of 19 public sector banks was analyzed using linear
multiple regression model. The financial performance of public sector banks was expressed by Return on
Assets (ROA) and Return on Equity (ROE) variables. Using multiple regression technique the analysis of
sample data for the time period 2008-2014 revealed that except capital adequacy ratio (CAR) variable all
other bank specific variables (Asset Quality, Management Efficiency, Earning Quality, Liquidity) and
macroeconomic variable gross domestic product (GDP) had significantly influenced the financial performance
of public sector banks in India. However, it was also observed that macroeconomic variable inflation was
statistically insignificant in case of its effect on return on assets (ROA). The implications of the study revealed
that inspite of optimum capital adequacy ratio maintained by public sector banks, the other variables related
with management and governance of banks had significant effect on the financial performance of the banks.
The growing trend of GDP affected demand for bank credit positively which in turn increased the profitability
of banks. The influence of inflation variable was mixed on the financial performance of banks.
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**Dr. Sanjeev Dhawan, Associate Professor, Post Graduate Department of Economics, DAV College,
Jalandhar, India. Email: dhawan2sanjeev@yahoo.co.in
*Mr. Parvesh Kumar Aspal, Assistant Registrar, Department of Finance and Accounts, Punjab Technical
University, Jalandhar, India. Email: pk_aspal@yahoo.com