Impact of Capital Requirement on Banks performance – A Comparative Analysis among commercial Bank Groups in India

Abstract

The standards of capital requirement for the banks are determined by the central banks and this is assumed an important parameter indicating the strength of the bank in case of any crisis. The Central banks fix such standards based on the recommendations and uniform guidelines of Basel accords from time to time with a permitted autonomy to the individual central banks. Over the years, the Basel norms have been tightened to make the banks more prudent. However, the standards fixed for capital adequacy have impact on banks performance in terms of their profitability and operational performance as the components of capital impact each other. The quality of credit under the loan portfolios of a bank is the major factor that influence other components like, returns on assets, net interest margin, credit-deposit ratio etc. since a decline in the asset quality have bearing on other variables. In India, among various bank groups, the public sector banks are found to face this problem to a larger extent on account of huge non-performing assets into their portfolios. This study assesses the impact of increased level of capital requirements ob scheduled commercial banks in India and also a comparison among the bank groups so as to find our which bank group is more affected by increased capital requirements.