Discriminant analysis for branch profitability Dr. Savithri R. Associate Professor, Department of Commerce, SDNB Vaishnav College for Women, Chennai-600044, India. Online published on 18 September, 2012. Abstract Performance of a Bank Branch can be measured by a number of indicators. Profitability is the most important and reliable indicator as it gives a broad indication of the capability of a Bank to increase its earnings. Profitability assumes greater importance in the changing scenario. The objective of this analysis is to develop a Discriminant function for Branch Profitability using the most significant ratios. This analysis attempts to identify the most critical ratios using a multivariate analysis technique called Discriminant Analysis. The sample consists of 326 bank branches in Tamil Nadu. The technique used for developing the Discriminant function of Branch Profitability is Step wise Discriminant Analysis. Deposit per branch is the most discriminating factor. Business per branch is the second most discriminating factor. NPA to total advances and priority sector advances to total advances are the third and fourth most discriminating factors between the two cluster groups. Discriminant Analysis identified only four variables among the thirteen variables as the significant discriminators of branch profitability (Profit per branch being the dependent variable). All the four variables have already been the most acknowledged variables influencing profitability of branches and the discriminant function confirms the same. The Discriminant model developed and the reduced set of four key variables provide an empirically tested frame work for financial decision making in Bank Branches in Tamil Nadu. The overall performance of the bank depends on the performance of the branches. Hence necessary steps should be taken to improve the working conditions and working of the branches in a more effective way. Top Keywords Branch Performance, Branch Profitability, Discriminant Analysis, Significant Ratios. Top |