Financial Risk Management
The Impact of Basel Norms on the Capital and Risk Behavior of Indian Banks

Article Details
Pub. Date : Dec, 2018
Product Name : The IUP Journal of Financial Risk Management
Product Type : Article
Product Code : IJFRM11812
Author Name : Samriti Kapoor and Mandeep Kaur
Availability : YES
Subject/Domain : Finance Management
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No. of Pages : 16

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Abstract

The present study is an attempt to empirically examine the impact of Basel Accord regulatory guidelines on the capital and risk behavior of Indian banks. It aims to assess how Indian banks adjust capital and risk under capital regulation. The study uses simultaneous equation modeling with Three-Stage Least Square (3SLS) regression to study the endogenous relationship between risk and capital. A regulatory dummy variable has been included as a proxy for Basel norms regulation. The data of public and private sector banks operating in India over a period from 2006 to 2016 is used for the present study. The results evidently reveal significant impact of Basel norms on the capital and risk behavior of Indian banks. The study found a positive impact of Basel norms on the capital level of Indian banks. The results also highlight the negative relationship between capital and risk in the context of Indian banks.


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Banks are the main financial intermediaries of an economy and play a pivotal role in the economic growth and development of a nation. To cater to the changes ushered in by globalization and re-engineering, banks have widened the breadth of their activities, and they are offering myriad customized products and services to their customers. This increase in the array of activities has exposed the banking sector to various types of risks. Therefore, financial institutions around the world have started recognizing the importance of identifying, managing and monitoring risk considering its disastrous consequences. This has led to the development of capital regulations, which is supposed to prevent or at least decrease the frequency of the banking crisis by prohibiting banks from excessive risk-taking behavior (Behr et al., 2009).


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ISBN: 978-81-314-2793-4
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