The influence of demonetization and internal determinants on banks’ profitability: A comparative study of private and public banks’ governance

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Abstract

The purpose of the current research is to assess the effect of demonetization and internal determinants of private and public listed commercial banks’ profitability in India from 2008 to 2017. Many banks suffered massive losses as a result of subprime mortgages in the United States, as well as the existing economic slump, which resulted in the bankruptcy of many institutions, while banks’ profitability is measured using return on assets (ROA), return on equity (ROE), and net interest margin (NIM), internal determinants that function against the bank’s profitability are operational efficiency, capital adequacy, liquidity, asset quality, asset management, and deposits. The study uses panel data with a two-way random effect model and generalized method of moments. The present study uses a sample of Indian commercial banks listed on the Bombay Stock Exchange. The results indicate that demonetization has a significant negative influence on ROA, ROE, and NIM. In addition, there is a significant difference and variation between private and public banks in the impact of internal determinants on banks’ profitability. The current study adds significant contributions to the body of knowledge in the field of demonetization and internal drivers of private and public banks’ profitability in India, which is important to bankers and other stakeholders. The study was limited to India’s banking sector and its specific social and cultural context during a specific time period, meaning the results do not apply to other sectors.

Keywords: Demonetization, Internal Determinants, Banks’ Profitability, Private and Public Banks, Governance

Authors’ individual contribution: The Author is responsible for all the contributions to the paper according to CRediT (Contributor Roles Taxonomy) standards.

Declaration of conflicting interests: The Author declares that there is no conflict of interest.

JEL Classification: G21, G28, G32

Received: 13.12.2024
Revised: 12.03.2025; 15.09.2025
Accepted: 23.09.2025
Published online: 25.09.2025

How to cite this paper: Alfify, M. H. (2025). The influence of demonetization and internal determinants on banks’ profitability: A comparative study of private and public banks’ governance. Journal of Governance & Regulation, 14(4), 19–28. https://doi.org/10.22495/jgrv14i4art2