A Study on Influence of Bank Specific Profitability Indicators on Net Interest Margin

  • P Arun Prakash, T Sisili


The present study aims to examine the influence of banks specific profitability indicators on net interest margin of public and private sector commercial banks in India for the period from 2005 to 2019 using research instruments such as Unit Root Test, Kao Residual Cointegration Test, Granger Causality Test and Panel Data Regression with Fixed Effect Model. The analytical results of Kao Residual Cointegration Test confirmed the existence of long-term association among chosen study variables. The results granger causality showed that explanatory variables such as Interest Income to Total Income (IITI), Non-Interest Income to Total Assets (NIITA), Non-Interest Income to Total Income (NIITI), Priority Sector Advances to Total Advances (PSATA), Loan to Total Assets (LTA), Liquid Assets to Total Assets (LATA), Deposits to Total Assets (DTA) and Business Per Employee (BPE) are having uni-variate causality relationship with explained variable Net Interest Margin(NIM). Variables like Interest Income to Total Assets (IITA), Non-Interest Income to Operating Income (NIIOI), Capital Adequacy Ratio (CAR) are having bi-variate granger causal relationship with Net Interest Margin (NIM)of public and private sector commercial banks. It is also observed these variables are having major influence on net interest margin.