A study of impact on capital structure and liquidity analysis of profitability towards hdfc bank

Abstract

The capital structure is one of the most important strategic financial decisions of firms. Since financing decisions influence profitability and hence firm’s value, this study examines the impact of capital structure on profitability of banks . In order to meet the objectives of this study a quantitative panel data methodology was employed. The data were obtained from the audited financial statements , from the period of 8 years (2010 – 2018). Of this, 75% constitute deposit and the remaining was non-deposit liabilities. The findings revealed that capital structure as measured by total debt to asset had statistically significant insignificant,though it has postive impact, whereas deposit to asset had statistically significant positive impact on capital structure. Moreover,loan to deposit, spread and asset size also had statistically significant and positive relationship with profitability. However, growth found to have statistically insignificant impact on profitability. Therefore, The bank should give due consideration to manage its debt properly, mobilize deposit sufficiently, increase loan advances, spread, and size in their financing decisions. Furthermore,it is also advised to reduce non-deposit debt financing and raise equity financing so that to keep costs of financing at minimumlevel and hence optimize profitability and the value of the bank. Besides, the policy maker, recommended reconsidering to raise the minimum capital requirement for banks. Finally, future researchers also recommended assessing the overall performance of banks and other business sectors in the area of this research.