Profitability and Market Share in Banks: A Review

There are pending discussions over an impact of global regulatory efforts on banks. In this paper we present a literature review on the profitability and market share in banking. An important outcome of the study was that productivity measured in terms of business per employee has grown by almost four times. But labor productivity has not only remained low but has also declined during a major part of the reform period, although it is showing a rising trend in the last three years. However, the efficiency of the banks has improved. The public sector banks are showing improved profitability since reforms. The economic reforms have resulted in putting pressure on the weak banks and forced them to perform better resulting in increased convergence among banks in the post reform period. The composite index shows that Oriental Bank of Commerce is a consistently high performer in the pre and post reform period while the three weak banks have always been poor performers. However Corporation Bank has emerged as the new star performer. The public sector banks in general are displaying economies of scale, which is consistent with recent suggestions recommending merger of some banks to improve their functioning.. The results obtained by the authors indicate that changes in the capital level are positively related to the changes in asset risk. The second group of the literature concentrating solely on the relationship between the level of held capital and bank profitability is limited. Nevertheless, there are a lot of studies dealing with the banks’ profitability as such, where bank capital is very often included as an explanatory variable. Based on the literature review of dozens of relevant papers in this study, an empirical research on banks’ profitability and risk adjustment decisions under new banking rules Basel III rules can be easily undertaken.

Keywords:

Banking , Profitability , Market Share , Review