IMPACT OF INTEREST RATE CHANGES ON BANK PROFITABILITY

Abstract

Interest rate changes have a direct impact on lending rates, deposit costs, and the demand for credit 
generally, all of which have a significant impact on how well banks perform financially. With a focus on 
a few nationalized banks in India, this study looks at interest rate trends and how they affect important 
profitability metrics like return on equity (ROE), return on assets (ROA), and net interest margin (NIM). 
The study examines the connection between interest rate fluctuations and banking profitability in the last 
several years using statistical techniques like regression, correlation, and ANOVA. According to the 
research, while dropping interest rates encourage credit expansion but reduce profitability, rising rates 
initially boost profits but may also reduce loan demand. The study emphasizes how crucial diversification 
and efficient asset-liability management are to maintaining profitability in contexts with shifting interest 
rates. By offering empirical insights, this study advances our knowledge of the mechanisms behind 
monetary transmission and has useful ramifications for investors, policymakers, and bank management in 
enhancing long-term profitability and financial stability.