Abstract:
The study investigates whether changes in bank competition, efficiency, and risk-taking affect the
profitability of Indian commercial banks during 1996− 2016. While assessing the determinants of
profitability, this study considers a wide range of bank-specific, macroeconomic, and institutional
factors that explain the variations in bank profitability. Results estimated through the two-step
system GMM indicate that a higher level of bank competition deteriorates bank profitability in
Indian banking. Regarding risk-taking, results reveal that the growing incidence of credit risk
hampers bank profitability for the whole banking industry and across ownerships. However,
higher levels of profit and cost efficiency are positively associated with bank performance. Other
bank-specific, macroeconomic, and institutional variables appear to have influenced bank profitability in India. The joint effect of competition and efficiency (or risk-taking) has further been
examined in this study.
