Impact of Liquidity, Efficiency and Solvency on Profitability of Select Banks

Abstract

‘Liquidity’ is the capability of a business to fulfil its short-term maturing obligations within one year, ‘Efficiency’ shows refers tocapacity of a firm to turn resources into revenue, ‘Solvency’ shows ability of a business to pay its bills in the long term and ‘Profitability’ displays the capability of a business to earn profits with respect to investments. So, all these variables show performance of a business in different areas. Previous papers show that these variables are interrelated and if one variable increases or decreases, it impacts the one or the other. But does liquidity, efficiency and solvency have an influence on profitability of Banks? So, the current study tries to examinethe impact of these variables on profitability of select Banks in Indian Banking Industry. Four leading Banks were considered for the study, two from private sector and two from public sector based on their market capitalization. The results of the study shows that liquidity and debt equity ratio had a negative impact on profitability of select banks.