Risk-Based Capital, Human Capital and Risk of Indian Banks- Combining Insight from Panel Data Regression and Quantile Regression

Abstract

Management of risk has emerged as one of the core banking activities all over the world because of the banking crisis observed in different countries. This paper has tried to address the influence of risk-based capital (CAR) and human capital on the risk of Indian listed commercial banks.The relevant secondary data on 39 listed commercial banks for a period of 15 years from 1999- 2013 are collected from 'Capitaline Plus' corporate data database, Central Statistical Organization, RBI database and Economic Survey. Employing appropriate panel data regression and quantile regression the results indicate that both CAR and human capital efficiency (HCE) are negatively associated with bank risk. Further, the influence of other explanatory variables (relational capital, bank size and growth of GDP) on bank risk is also negative. However, the study finds that panel data regression model is inadequate to explore the true picture of the influence of CAR and HCE on the bank risk. The outcome of quantile regression model indicates that the negative influence of HCE is insignificant at upper tails of the distribution of bank risk. In contrary, the negative influence of CAR is more pronounced at upper tails of the distribution of bank risk.