“A Comparative Analysis of Capital Structure Determinants and their Impact on Profitability: A Study of Indian Public vs. Private Banks”

Abstract

By comparing State Bank of India and HDFC Bank between 2021 and 2025, this study examines the connection between capital structure and profitability in the Indian banking industry. The research is motivated by changing regulatory frameworks, especially Basel III standards, as well as the increasing demand for operational effectiveness and financial stability in a technologically advanced, competitive world.
Using secondary data from annual reports and RBI publications, the study employs independent sample t-tests, regression, correlation, ratio analysis, and trend analysis. While Return on Assets (ROA), Return on Equity (ROE) and Net Profit Margin (NPM) are used to quantify profitability, Debt-Equity Ratio, Capital Adequacy Ratio (CAR), and Advances to Total Assets are crucial indicators of capital structure. The findings indicate that there are substantial differences between the two banks. The efficient use of assets and consistent profitability of HDFC Bank are demonstrated by stronger capital adequacy, lower leverage, and improved ROA and NPM performance. SBI, on the other hand, has a higher ROE because to its greater leverage, which represents the risk-return trade-off.
The regression's results demonstrate that while excessive leverage boosts shareholder returns but decreases operational efficiency, capital adequacy and asset utilization have a positive effect on profitability.
The analysis concludes that an optimal capital structure is necessary for sustainable banking performance. While an excessive reliance on debt increases financial risk, stronger capital positions increase stability and profitability. The research's perceptive examination of the connection between capital structure and profitability in India can be helpful to academics, policymakers and banking specialists.