AN EMPIRICAL ANALYSIS OF THE DETERMINANTS OF PROFITABILITY OF PRIVATE SECTOR BANKS.

The entry of new generation private sector banks influenced the dynamics of the business of Indian banks, particularly among old private sector banks. This paper has made an attempt to investigate the impact of bank specific and macroeconomic determinants on the overall profitability of old and new private sectors banks in India. Internal factors include individual bank specific characteristics which directly affect the bank?s profitabilityand influenced by the decisions of internal management and that differs from bank to bank. On the other hand, external factors considered in the study include macroeconomic determinants which are beyond the control of the banks and they are bound to accept them. The results indicated that the magnitudes of the impact of the internal factors are similar in nature for both categories of banks. Among the indicators, the efficiency of bank management is the most important determinant of bank?s profitability, while liquidly has the least impact on it. Financial instability made old private sector banks more vulnerable compared to new private sector banks. However, post financial crisis situation is positive for new private sector banks as estimated from the coefficients of panel data regression. Favourable macroeconomic situation after the financial crisis and rapid adoption of technology in banking operation has helped new private sector banks outperform other categories of banks on profitability