Business Analyst Journal

The banks encourage capital formation, promote innovation, monetization and enhance business activities in the economy. Banks also play the role of facilitator of monetary policy. The success of banking sector depends upon the financial performance of the banks. The main objective of the present study is to examine the influence of bank specific (internal) factors and macroeconomic (external) factors on the performance of Public sector banks in India. The bank specific factors include Capital Adequacy, Asset Quality, Management Efficiency, Earning Quality and Liquidity. The macroeconomic factors such as GDP growth rate and average annual inflation rate were taken into consideration for analysis. The financial performance of public sector banks was measured by Return on Assets (ROA) and Return on Equity (ROE) variables. The results of the study reported that the except capital adequacy ratio variable all other bank specific variables (Asset Quality, Management Efficiency, Earning Quality, Liquidity) and macroeconomic variable gross domestic product had significantly influenced the financial performance of public sector banks in India. The implications of the study suggested that instead of optimum capital adequacy ratio maintained by banks, the other variables related with management and governance of banks had significant effect on financial performance of banks.