Authors: Santi Gopal Maji; Preeti Hazarika
Addresses: Department of Commerce, North Eastern Hill University, Shillong 793022, Meghalaya, India ' Department of Commerce, North Eastern Hill University, Shillong 793022, Meghalaya, India
Abstract: This paper aims to investigate the association between changes in regulatory capital and risk of Indian commercial banks by using secondary data collected from 'Capitaline Plus' corporate database from 2000 to 2014. Employing a three-stage least-squares technique in a simultaneous equation framework, the study finds that changes in capital and those in risk are negatively associated. The observed results also indicate the speed of adjusting the level of risk is greater than the speed of adjusting the level of capital adequacy ratio, which suggests that Indian banks are maintaining stipulated levels of capital and concentrating more on achieving the target level of risk at a faster rate.
Keywords: regulatory capital; bank risk; adjustment speed; profitability; bank size; service sector growth; GDP growth; gross domestic product; simultaneous equation model; India; commercial banks; bank capital; emerging markets; bank services; banking industry; risk levels.
International Journal of Financial Services Management, 2016 Vol.8 No.3, pp.272 - 289
Received: 24 May 2016
Accepted: 02 Sep 2016
Published online: 29 Oct 2016 *