This paper examines the macroeconomic factors affecting the profitability of public sector commercial banks in India over the period 2000 to 2017. Using return on equity (ROE) and net interest margin (NIM) as the measure of profitability, we have taken a balanced panel for 20 public sector commercial banks in India. Using suitable models in line with the existing work, we have attempted to find out the macroeconomic determinants of the profitability of commercial banks in India. Our findings reveal that gross domestic product (GDP), inflation and unemployment have a significant positive impact on NIM and ROE. The results further indicate that financial crisis has a highly significant negative impact on all the profitability measures. The effect of lending interest rate on ROE and NIM is found to be insignificant in the empirical analysis. The results convey that macroeconomic factors, especially growth rate, inflation and unemployment, have significant bearing on the profitability of commercial banks in India. The results have been found to be robust, which strengthens the validity of our findings.
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