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Impact of Macroeconomic Determinants on Profitability of Indian Commercial Banks

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Author Affiliations

  • 1Institute of Business Management and Research, IPS Academy, Indore, MP, India
  • 2Institute of Management Studies, Devi Ahilya Vishwavidyalaya, Indore, MP, India

Res. J. Management Sci., Volume 5, Issue (10), Pages 9-16, October,6 (2016)

Abstract

Banking system is one of the important pillars of financial system. Failure of any bank creates contagion effect in the economy. Therefore, it is very important to measure financial performance of banking sector. The performance was mostly measured by profitability. The profitability affected by various determinants, which can be fairly categorized into Macroeconomic determinants and internal determinants. Macroeconomic determinants are very important because they impact the financial performance of banks but they are not under the control of banks. Banks’ management will able to understand the significant external determinants and modified their strategic decisions in such a way that optimal performance can be achieved. The aim of the present study was to examine the impact of Macroeconomic determinants on the profitability of listed commercial banks of India for period from 2009-2010 to 2014-2015. Bank profitability measures were considered as: Return on Assets (ROA) and Return on Equity (ROE). Gross Domestic Product (GDP), Interest Rate and Inflation were used as independent variables to analyze the impact on the dependent variable i.e., ROA and ROE of listed Indian Commercial Banks. All listed commercial banks in were taken as a sample except one banks due unavailability of data. Total 39 listed banks were considered for present study. Correlation and Multiple Regression Analysis were used. The empirical findings revealed that GDP, Interest Rate and Inflation all the three Macroeconomic determinants have an insignificant positive impact on profitability of listed commercial Indian banks.

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