Abstract
This paper aims to understand the emergence of Basel banking norms i.e. Basel I, Basel II, and Basel III. The primary purpose of developing this understanding is to study these norms in the Indian context and the modifications made by the Reserve Bank of India while adopting these Basel norms in India. The current study examines the determinants of profitability of Indian scheduled commercial banks during the Basel regime. The analysis is conducted over a period of 18 years in which the Indian banking sector has faced different challenges such as implementation of Basel I (2002), Basel II (2008), Basel III (2013) accord. The analysis is based on balanced panel data over a period ranging from 2002 to 2019 for 37 scheduled commercial banks of India. Profitability of Indian banks is measured by two proxies, namely, return on assets (ROA) and return on equity (ROE), whereas bank size, assets quality, capital adequacy, liquidity, operating efficiency, deposits, leverage, and assets management are used as bank‐specific factors. Further, a set of macroeconomic determinants such as gross domestic product, inflation rate, export, import, interest rate, and three dummy variables (Basel I, Basel II, and Basel III) are used as independent variables.
Stationary test along with correlation matrix, pooled, fixed, random effect models and Hausman test are used in this study. The results revealed that bank size; assets management ratio, and operational efficiency, are the most important bank‐specific determinants have positively and significantly affect the profitability of Indian commercial banks as measured by ROA as well as ROE. However, leverage ratio and asset quality have significant and negative impact on ROA and ROE during the period of study. With regard to the macroeconomic determinants, the results revealed that the GDP, export, and interest rate are found to have a positive significant impact on ROA and ROE. However, inflation rate and Basel accords have significant and negative impact on ROA and ROE during the period of study.