Study on indirect and direct variable of Private sector Banks in Chitradurga

Pramod D1and Uday kumar Jagannathan2

Faculty of Management and Commerce, Ramaiah University of Applied Sciences, Bangalore 560 054
Contact Author E-mail- ujagannathan.ms.mc@msruas.ac.in

Abstract: The objective of this research is to analyse profitability of private sectors Banks in Chitradurga as measured by the
profitability of the Banks. This study has included both primary and secondary data. Primary data has been collected by way
of survey method by interviewing Bank customers. Secondary data has been collected from Banks’ personnel as well as
Banks’ website and Reserve Bank of India (RBI) websites. This study has focused on direct and indirect variables of the
private Banks, direct variables include loans and advances, profit of the Banks and interest rates. Indirect variables includes
size of the Banks, density of the Automated Teller Machines (ATMs), Behaviour of the staff and surcharges of the Banking
transaction that have been captured and are assumed to have indirect effects to the Banks’s profits. The data generated are an
aggregation of 19 Banks, 65 branches and 100 Bank customer reviews. This research is based on data survey and several
hypotheses are formed for the dependence of profitability on direct and indirect variables. Regressions are run and the
coefficients from the regression are used and tested for statistical significance. The regression analysis helps to measure the
effect of variables on profits and also shows the coefficient of determination and coefficient of multiple determination for the
multiple regressions. The results from the study indicate that variables such as Bank size, ATMs density, interest rates and
Banks services influence bank profitability. Bank authorities look for different approaches by considering above said
variables to change the business and to enhance profits, measurement of profitability and recording profitability. Higher the
profit, more is the life of bank and also more rewards on investments.
Keywords: Bank Profitability, ATM density, Interest Rates, Advances, Deposits
JEL Classification: C83, C88, E43, G2, H8
1.0 Introduction:
Private Banks in India are represented as part of the
Indian banking system. The Banking system itself
includes both Private sector banks and public sector
banks. "Private sector bank" refers to a bank in which
interests or shares are held by individuals rather than
shareholders and government. When the Indian
government authorities took over all major banks were
nationalized by the Indian government in 1969.
The system of the banking has been ruled by public
sector bank from the government in 1969, all the banks
were formed by the Indian government. But from the
time the policy came out in the public Banking program
in the 1990s, the new and old banks were introduced into
the private sector banks. Over the past twenty years,
liberalization has increased with advent of new
technologies, in addition to improved management of
financial assets. It is therefore considered that the new
private sector Banks are the ones who can catalyse
growth and profitability in the Indian Banking Sector.
Profit earning is the aim of every business or Banks
nowadays some Banks are earning very good profit and
some Banks are undergoing loss. This profit and loss will
depend on the Banking variables. It is very important in
Bank’s profits because the health of the industry is
related to the health of the whole economy. The financial
strength of the Banking institution is prosperous in its
profit. Therefore, it is necessary to make a profit for any
Bank.
Two types of variables are being considered in the
research direct variables as well as indirect variables,
direct variables include interest rate, total number of
deposits, total business, loans, interest rates while
indirect variables include, Bank size, ATM Services,
Total number of Staff, ATM's Density and other such
variables. Not all indirect variables are included in the
regression. It is expected that these variables would be
helpful in determining whether the Banks included in this
study categorize into good, average or poor banks. Even
though study show that it is possible to conduct a
meaningful analysis of Bank profitability, this study
mainly focuses on the profit ability of private Banks.
Indian Banking industry is essential for the Indian
economy and one of the important financial intermediary
programs. Karnataka private Banking body plays an
important role in national development and this role is
increasing standard of living (SDL) of the customer.
Indian Banking sector plays excellent role in financial
intermediaries between borrowers and investors. The
banking services sector is playing very dynamic role in
Indian economy
New Banking Generation
On the policy of liberalization in 1990, the government
of India has permitted to start private sector banking and
the sector has witnessed to generate new banking or
private banking. The most important parameters is
distancing these private banks from the all other banks,
this is divided on the basis of level of service offered to
its customer which effects the profit. It is verified and
focused on the basis customer needs and understanding.
Limitations has been overcome compared to old banking
services like maintaining ledgers, huge employee
requirements and other such factors. Newer banking
services includes computerization and automation for
decrease in time consumption and hence increase in
profits. But some of the private banks are not utilizing
these facilities.
Most of the private banks are focused on urban cities (up
to 70% in India). This study focuses on effectiveness,
the main factor is on reflecting their strengths and
capabilities. Administering and execution of service must
be managed better. At present, the private banking is
very broad and very active in the Indian banking sector.
Their banking services are very effective in the
development of Indian economy.
2.0 Literature Review
The research on the financial performance of the banks.
Researchers have used many of the most important ways
to determine the rules that determine the value of Indian
banks (Aggarwal (2013). net interest is the important
basis of revenue for the banks, income is the main source
of the money. Research found the public sector banks is
lower position in the relation to the abroad banks that
alongside the city Authors suggest that local councils
focus on managing non-profit and investment
management of better data and advanced technology.
Focus on the distribution of profitability in China as
profitability reflects the management of the banks, and
the more the profitability, more competitive are the
Banks. (Tan 2016). The author has researched about
how Bankers and bank executives will become more
vulnerable controlled by the behaviour, risk taking of the
Chinese Banks, and researchers have found that the
benefit of Chinese currency on the budget, cost, and
productivity will increase banking profitability. By
understanding, it will provide policy-making for Chinese
commercial Banking and the various types of
management of the Chinese Banks. The author did not
focus on showing strong evidence about the benefits of
the competition and the problem with the effectiveness of
the commercial banking
Investigation on identifying areas of the top banks, and
researching on their management and management
structure. In addition, the "risk responsibility" decision is
to find that this paper looks like the Banks are in trouble
because of the potential issues that market makers need.
The research found that a bad quality, too much on
buying and holding costs returns, was similar to the fact
that the Banks suffered most of the problem when the
policies were approved and marketing were made before
the crisis. Therefore, the study provided good
information that suggests that people can be disturbed by
a major component of disability (Aebi, Sabato and
Schmid 2012). Study on how to use the banks that are
designated as cash savings and strengths of the
competition for smaller countries. Promoting the
competition of non-bank finance companies is effected to
the banking sector in the development budgets in this
area. Most of these products will survive powerful tests
even after dealing with special problems. This study has
expanded on a large scale, with the aim of achieving
public policy for banking and financial institutions. There
are different profits across the country's financial
institutions (Mirzaeia (2014).
Focus on the effect of a percentage change in ATM, and
on strategic action of Banks to maximize their profit. It
means that the large Banks that set their ATM surcharge
levels high will increase their market share of the Banks,
giving higher ATM additional charge (Massoud,
Saunders and Schlock 2006). The indirect effect results
from clients. And this surcharge of ATMs creates
competition between Banks.
3.0 Problem Statement
A Study on Impact of Bank Size, ATM Density and
Interest Rates on Private Bank Profitability in
Chitradurga District of Karnataka
4.0 Objectives:
1. To Design a questionnaire aimed at the
customer respondents and collect reviews from
the customers
2. To Identify the various factors influencing
profitability private sectors Banks
3. To compare the profitability trends between the
various Banks
4. To analyse the regression coefficients and fit of
the regression for the selected variables
5. To conclude the finding and suggest
improvement of profitability for private Banks
Research Gap
Now a days some Banks are profitable while others are
not, because that Banks are not manage basic Banking
variable, Variables like branch Size, ATM Density,
Interest rates, Banking services, employee behaviour,
advance are hypothesized to directly, or indirectly affect
the profitability of the Banks. It is expected that Banks
without proper balancing of these input variables would
not exhibit profitability. Therefore the hypotheses are
constructed in a way to introduce these variables as
influencers of Bank profitability.
Hypothesis 1
Null Hypothesis H0: Size of the bank in Chitradurga
district does not affect the profitability of the bank
Alternative Hypothesis H1: Size of the bank in
Chitradurga district affects the profitability of the bank
Hypothesis 2
H0: Number of ATMs Installed in Chitradurga district
does not affect the profitability of the bank
H1: Number of ATMs Installed in Chitradurga district
affects the profitability of the bank
Hypothesis 3
H0: Average Advances of agriculture in Chitradurga
district does not affect the profitability of the bank.
H1: Average Advances of agriculture in Chitradurga
district affect the profitability of the bank
Hypothesis 4
H0: Average Micro and Small Enterprises interest rate in
Chitradurga district does not affect the profitability of the
bank
H1: Average Micro and Small Enterprises interest rate in
Chitradurga district affect the profitability of the bank
Hypothesis 5
H0: Total Business of the Bank in Chitradurga district
does not affect the profitability of the bank.
H1: Total Business Chitradurga district affect the
profitability of the bank
Hypothesis 6
H0: Total deposit of the Bank in Chitradurga district does
not affect the profitability of the bank.
H1: Total deposit of the Bank in Chitradurga district
affect the profitability of the bank
5.0 Methodology
Collecting data
The study is conducted on primary and secondary data.
Required Information collated for this study has been
from survey method, the data collected by lead Banks
review report on Banks statistics, annual action plan
2017, customer feedback, the annual report of private
Banks and different books, journals, magazines & data
collected from various Bank websites.
Factors Affecting Bank Profitability
The main factors that affect the profitability of Banks are
divided into 2 categories of variables: direct variable and
indirect variable. It is expected that both categories of
variables impact Bank profitability. Internal and external
variables directly or indirectly effect the Banks’ business.
Internal variables relate to internal efficiency and
management decisions. These factors could include Bank
capital, Bank size, ATM Density, Asset quality, income
and other determinants. Modification, Liquidity Risk and
Operating Efficiency (Cost Management). On the other
side, the theory of market power assumes that Bank
profitability is a function of External banking factors.
Such one of the external factors (external variables) that
can be the effect of Bank profitability of the Banks is a
unique operating factor. These elements mainly include
Operating concentration or market share as the main
factor of the Bank Profitability. Finally, the
macroeconomic factors that affect the profitability of
Banks Including GDP, interest rate, money supply
growth and inflation rate and other factors.
6.0 Results

Calculating the R-squared from the regression

Hypothesis 5
Findings of Hypothesis Testing The T-stat from regression for the Total business of the
bank in Chitradurga district is 3.1255944 and P-value is
Table 1: Table showing Hypothesis Results
0.0167
Hypothesis T-statistic P-value Accept/Reject
The P-value lesser than 0.05, hence the null hypothesis is
from
Number rejected. Therefore, Total business of the bank in
regression
Chitradurga district does not affect the profitability of the
1 2.889* 0.0102 Reject banks

2 1.767 0.0952 Accept Hypothesis 6

The T-stat from regression for the deposit of the Bank in

3 1.730 0.1041 Accept
Chitradurga district is 8.067903 and P-value is 0.0000
4 1.207 0.2458 Accept
The P-value lesser than 0.05, hence the null hypothesis is
5 3.125* 0.0167 Reject rejected. Therefore, deposit of the Bank in Chitradurga
district does not affect the profitability of the banks
6 8.067** 0.0000 Reject

** Significant at the 0.01 level * Significant at the 0.05

level

Hypothesis 1

The T-statistic from regression for the size of bank in

Chitradurga district is 2.889 and P-value is 0.0102

The P-value lesser than 0.05, hence the null hypothesis is

rejected. Therefore Size of the bank in Chitradurga
district does not affect the profitability of the bank

Hypothesis 2

The T-stat from regression for the ATMs Installed in

Chitradurga district is 1.7671 and P-value is 0.0952 Figure 6.1A: Customer ratting in respect to opening
bank account
The P-value lesser than 0.05, hence the null hypothesis is
rejected. Therefore, ATMs Installed in Chitradurga The above figure 6.1A: Chart showing response of
district does not affect the profitability of the bank customers regarding opening their account according to
their convenience
Hypothesis 3
The above figure says as per the primary survey
The T-stat from regression for the Average Advances of
conducted in different Banks in Chitradurga District,
agriculture in Chitradurga district is 1.730464 and P-
rating is done according to customer point of view in
value is 0.1041
opening account at according to their convenience. It is
The P-value lesser than 0.05, hence the null hypothesis is time saving process.
rejected. Therefore, Average Advances of agriculture in
Chitradurga district does not affect the profitability of the
bank

Hypothesis 4

The T-stat from regression for the Average Micro and

Small Enterprises in Chitradurga district is 1.207903 and
P-value is 0.2458

The P-value lesser than 0.05, hence the null hypothesis is

rejected. Therefore, Average Micro and Small
Chitradurga district does not affect the profitability of the
bank,
 The above figure 6.5B: Shows that Customers have given
their feedback according to survey effects the growth and
profits and hence a survey conducted to check Bank
services. It offers better loans, ATMs and other services
that increases profits.

Figure 6.1B: Customer response in respect to opening

bank account

The above figure 6.1 B: Shows that Customers have

given their feedback according to survey conducted to
open the account in a place nearby, where many people
have agreed to open their account in the Banks which is
located near to them. It is time saving and easy to
deposit, withdraw and other Banking services. Figure 6.4A Customer ratting in respect to size of the
Bank

Figure 6.4A shoes Karnataka Bank has multiple branches

in the city and also there are number of ATM centres that
provide customers a better service too. Hence it increases
the profitability of Banks.

Figure 6.5A Customer ratting in respect to Bank

service

The above Figure 6.5A: Shows as per the primary survey

conducted in different Banks in Chitradurga District,
rating is done according to customer point of view in
providing service. We see performance of Karnataka
Bank tops in providing service to customers.
Figure 6.4B Customer response in respect to branches
located around the city

The above Figure6.4B shows as per the customer’s

reviews, it shows that most of the people are neutral
about sufficient number of branches in the city.

Figure 6.5B Customer response in respect to banking

service
Figure 6.5A: Customer ratting in respect to size of the
ATMs

Figure 6.5A: Shows Number of ATMs in city density is a

major criteria. More is the density, more is the demand
for the transactions and hence more is the profits.

Figure 6.6A Number of Banks and there ATMs

located in Chitradurga district

The above Figure 6.6A shows the number of Banks and

there ATMs located in Chitradurga district Vijaya Bank
has highest number of branches and highest number
ATMs compare to other Banks. In total, there are 65
branches and 87 ATM s Chitradurga district.
Figure 6.5B Customer response in respect to ATMs
located around the city Table 3: Deposit and Profits of banks
Figure 6.5B Shoes Chitradurga district has lesser number Banks name Deposits of the Profit (Crores)
of ATM services. This shows the need for customers and
Banks(Crores)
in response Banks has to support with higher facility.
Allahabad Bank 3.9 0.109
Table 2: Size of the Bank and Number of ATMs Axis Bank 19 3.055
located in Chitradurga district
Bank of Baroda 24.42 2.054
Banks Name Size of the Number of Bank of India 13.76 0.937
Bank in ATMs
Central Bank 9.41 0.243
Chitradurga Installed
Allahabad Bank 1 1 Federal Bank 29.94 3.661
Axis Bank 4 9 HDFC Bank 44.74 10.261
Bank of Baroda 3 2 ICICI Bank 24.16 14.47
Bank of India 2 2 IDBI Bank 36.71 2.7387
Central Bank 1 1 Karnataka Bank 287.19 46.469
Federal Bank 3 6 Karnataka Bank 287.19 46.469
HDFC Bank 3 3 Kaur Vysya Bank 20.32 1.638
ICICI Bank 6 5 Kodak Mahindra 107.65 17.843
IDBI Bank 2 3 Lakshmi Vilas Bank 33.12 1.127
Karnataka Bank 6 20 Oriental Bank 3.91 0.134
Kaur Vysya Bank 2 2 Punjab national Bank 4.57 0.117
Kodak Mahindra 8 1 Syndicate Bank 236.6 54.975
Lakshmi Vilas Bank 1 2 Union Bank 112 2.281
Oriental Bank 1 1 United Bank 3 0.088
Punjab national Bank 1 1 Vijay Bank 264 102.02
Syndicate Bank 7 13
Union Bank 1 1 The above Table 3 shoes total deposit of Banks and their
profit of the private Banks located in Chitradurga.
United Bank 1 0 District.
Vijay Bank 12 14

The above Table 2 shows the number of Banks and there

ATMs located in Chitradurga district. Vijaya Bank has
highest number of branches and highest number ATMs
compare to other Banks. In total, there are 65 branches
and 87 ATM s Chitradurga district.
 The above table No 4 shows profit, advances of
agriculture, OPS, private sector Banks located in
Chitradurga, district

Table 5: Interest rate of fixed and recurring deposit

Figure 6.7A Total deposits of the bank and profit of

the bank

The above Figure 6.7A shows that the Bank Karnataka

has highest deposit of Rs.287.2 crores and highest profit
of Rs.46.5 crores

Table 4: Profit, advances of agriculture,(other

priority sector loans (OPS), private sector Banks

advance
MSE(m
s of
Banks name Profit icro and Ops
agricult
small
ure

Allahabad Bank 0.109 0.4 0.24 2.03

Axis Bank 3.055 29.88 0 0

Bank of Baroda 2.054 2.18 1.1 2.45

Bank of India 0.936 2.66 6.46 1.53

Central Bank 0.243 0.26 2.94 1.04

Federal Bank 3.661 88.52 6.02 11.62

HDFC Bank 10.261 58.31 38.77 0.2

The above table No 5 shows average fixed interest of
ICICI Bank 14.473 58.31 0 13.55 Regular and senior citizen, and the RD Regular, and
senior citizen, private sector Banks located in
IDBI Bank 2.738 18.15 231.3 45.51 Chitradurga, district.
Karnataka Bank 46.46 13.42 25.44 117.19

Karnataka Bank 1.637 9.59 0.53 3.92

Kaur Vysya Bank 17.842 25.67 7.48 0.1

Kodak Mahindra 1.126 0.93 22.37 1.99

Lakshmi Vilas Bank 0.133 0.97 0.88 1.13

Oriental Bank 0.1171 0.22 0.63 0.18

Punjab national Bank 54.975 0.27 21.47 23.8

Syndicate Bank 2.281 150 2 6

Union Bank 2.251 0.02 0.15 1.59 Figure 6.8A FD interest rate between senor and
regular customer
United Bank 0.0881 143.7 17.88 75.05

Vijay Bank 10.202 0.4 0.24 2.03


Figure 6.8A RD interest rate between senor and
regular customer
8.0 Conclusions
On the basis of survey, Private Banks in Chitradurga of
Karnataka Region has a greater response towards the
quality and service of the Banking. By accepting
Innovative modern technological changes in banking
sector and by fitting responsibility of the officers for
recovery, can lead to increase in Banks Productivity,
Profitability and Performance.
Profitability of banks at Private Sector in Chitradurga,
Karnataka. It plays a main role in banking sector.
Without profit, the business cannot run. Profitability
measure a company or banks’ ability to create earnings.
These assess the ability of a Banks to generate earnings,
profits and cash, often the amount of money investment.
Profitability of the Banks provide a definitive valuation
of the overall effectiveness of organization based on the
returns generated on sales and investment. Profitability is
the main motivating force for any profitable activity. To
this end, the Banking business undertaking responsibility
has to earn profit from operations. Profitability as a base
to measure the effectiveness and efficiency of business
effort for the growth and success of any Banks.
The study signifies that all Banks in Private sector banks
selected were established to be different in positions of
variables, like interest rates, Bank size, ATMs density
and efficiency factors, this variables are effecting to the
Banks profit. If Banks wants to increase their
profitability, they have to consider all the variables
mentioned above and customers also shared their review
that, if all the private Banks consider above variables
they will profitable. It has suggested that entire private
sector banks have to take initiative steps towards
improving the operating profitability of the Banks.
The Profitability of the banks can be measured through
ATM density, number of branches (bank) available,
employee behaviour, interest rate and other services
offered.
The study empirically measures that out of 6 variables,
number of ATM’s installed, average advances of
agriculture, average of micro and small enterprises
interest rates are accepted which signifies that these 3
variables helps private banks to earn more profits.
Whereas variables like size of the banks, total turnover of
the bank nd total deposits of the bank are rejected. Which
shows that these 3 variables will not impact on profits.
8.0 Limitations
a) The study is related to a period of 1 years.
b) Data is restricted to Chitradurga District
c) Data is restricted to private Banks only
8.1 Future Suggestions
a) Profitability of Banks will also depend on number
of savings account in the Bank.
b) Non-performing Asset will also affect the Bank’s
profitability
c) Customer relation also depends on Bank’s
profitability.
d) Primary data from Bank employees can also be
taken.
9.0 REFERENCES
Aggarwal,p,kk. 2013. Determinants of profitability of
commercial banks in India. International journal of
research in commerce & management
Ali Mirzaeia, 1. T. M., 2014. What are the driving forces
of Bank competition? Journal of International Financial
Markets, Institutions & Money, Volume 36, pp. 38-71.
Nadia Massoud, Anthony Saunders and Barry Scholnick,
2006. The Impact of ATM Surcharges on Large versus
Small Banks: Is There a Switching Effect? The Journal
of Business, Volume 29, pp. 2099-2125.
Saunders and Barry Schlock, 2015. The Impact of ATM
Surcharges on Large versus Small Banks: Is There a
Switching Effect? The Journal of Business, pp. Vol. 79,
No. 4 (July 2006), pp. 2099-2125.
Vincent Aebi, Gabriele Sabato, Markus Schmid, 2012.
Risk management, corporate governance, and Bank
performance. Journal of Banking & Finance, Volume 36,
p. 3213–3226.
Yong Tan∗, 2016. The impacts of risk and competition
on Bank profitability in China. Journal of International
Financial Markets, Institutions & Money, p. 85–110.