Macroeconomic Indicators as the Key factors of IndIan publIc sector banks’ Profitability

Like all businesses, banks make profit by earning more money than what they pay in expenses. The traditional measures of the profitability of any bank are its return on assets (ROA) and return on equity (ROE). In this context, this study investigates the effect of macroeconomic variables on the profitability of public sector banks in India for years 2009 to 2015. Regression analysis by OLS was applied on the data to examine the effects of four major macroeconomic variables, namely, GDP, inflation rate, WPI & exchange rates on profitability of the banks. The study findings indicated that GDP at market price had negative effect on profitability of public sector banks as measured through ROA. Further, except inflation rate, other two economic indicators, WPI and exchange rate had also negative influence on profitability.