MACROECONOMIC DETERMINANTS OF BANK PROFITABILITY: EVIDENCE FROM RETURN ON EQUITY OF SCHEDULED COMMERCIAL BANKS IN INDIA
DOI:
https://doi.org/10.29121/ShodhPrabandhan.v2.i1.2025.118Keywords:
Ardl Model, Macroeconomic Variables, Roe, Scheduled Commercial Bank Of IndiaAbstract
The study using Autoregressive distributed lag (ARDL) examined the short- and long-term impact of macroeconomic variables on the profitability of scheduled commercial banks in India. For the study the annual data from 2005-2006 to 2022-23 were collected where return on equity (ROE) used as independent variable and FDI, GDP, IIP, inflation and unemployment rate as dependent variable. The outcome revealed that, in long term all macroeconomic variables exerted an insignificant impact on ROE. Inflation and FDI show a positive association, whereas GDP, IIP and unemployment was negatively correlated. In the short-run FDI, GDP, inflation and unemployment displayed significant negative effects on profitability, while IIP showed no significant impact. The findings suggested that macroeconomic shocks influenced banking performance differently depending on the time horizon. Thus, the study is useful for policymakers, regulators and bank managers in framing strategies to safeguard financial stability. By understanding both the short- and long-term effects of macroeconomic changes enable stakeholders to improve their capacity to withstand and recover from external shocks while developing effective adaptive strategies.
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