IMPACT OF SIZE OF BANKS ON ITS CAPITAL ADEQUACY RATIO AN EMPIRICAL STUDY OF INDIAN PUBLIC SECTOR BANKS
Received: 19.08.2021; Revised: 28.09.2021, Accepted: 21.10.2021, Published Online: 09.11.2021
Professor, Apeejay School of Management, New Delhi
Dean, Vivekananda School of Business Studies, New Delhi
Basel norms ensure the bank’s potential in terms of adequate capital to mitigate the probable losses due to the deterioration of assets quality. Bank size or total assets is considered as one of the important determinant for estimating capital adequacy. Besides balance sheet items, contingent liabilities as an off-balance sheet items are also an important variable with implicit risk that leaves its footprints on capital adequacy. Some studies mainly done outside India have empirically captured the relationship between capital adequacy and bank size. The present study establishes the same interdependence with reference to Indian public sector banks which are government owned and derives their capital mainly from governmental funding. The study tracks the peculiar gap as it considers off balance sheet item or the contingent liabilities. The decadal study has been done for twenty public sector banks for ten years period from 20109 to 2019. Panel regression analysis has been used to determine findings of study. It has been revealed that after application of fixed effect model, CAR and bank size has linear negative significant relationship. The results are in consensus of theoretical basis and the previous studies. In the same tandem, CAR and contingent liability also reveal linear negative and significant relation.
Keywords: Bank Size, Basel norms, Capital Adequacy Ratio, Contingent Liability, Fixed Effect Model, Public sector Banks.