An Empirical Analysis of Risks in Indian Banks Using Integrated Approach

Abstract

The global economic disaster caused by the subprime mortgage crisis of United States of America in 2007-2008 and its negative effects on the structure of the financial markets and the players in the financial industry all over the world have resulted in a crisis related to the management of capital in almost all the financial institutions with the most important effect being on banks. Here in this paper, we have studied the banking industry of India while concentrating on the factors affecting the efficiency of risk management in Indian banks in line with the BASEL II provisions. The aim of this study has been to analyze the main components and quality of bank assets in India and subsequently identify the effect of risk taking on banks, economic cycle fluctuations and risk management. The banks have been selected on the basis of their total asset base (in accordance with the report on India 's top banks 2013 by Dun & Bradstreet) and to add diversity Yes Bank has been included too. The empirical analysis has been done using panel regression techniques by taking a combination of time series and cross sectional data of various bank specific and macroeconomic factors. Insolvency of banks has been studied using capital inadequacy . We have used capital adequacy as a measure of solvency level forced by capital depletion as the dependent variable and it will be measured by dividing regulatmy capital with total risk weighted asset. The nature of the business cycle involved has also been related to it. We have employed various financial ratios, macroeconomic indicators and capital ratio. This way we have tried to predict the effectiveness of Basel principles and recommend policies for banks.