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Size, Non-performing Loan, Capital and Productivity Change: Evidence from Indian State-owned Banks

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  • Das, Abhiman
  • Ghosh, Saibal

Abstract

While the relationship between portfolio risk and capital and its interrelationship with operating efficiency has been extensively studied, little work has been forthcoming on the interrelationships among credit risk, capital and productivity change. The paper makes an attempt to examine the same in the Indian context. Using data on state-owned banks (SOBs) for the period 1995-96 through 2000-2001, the paper finds capital, risk and productivity change to be intertwined, with each reinforcing and to a degree, complementing the other. The results imply that inadequately capitalized banks have lower productivity and are subject to a higher degree of regulatory pressure than adequately capitalized ones. Finally, the results lend support, especially for medium-sized banks, to the belief that lowering Government ownership tends to improve productivity.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 17396.

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Date of creation: 2006
Date of revision:
Handle: RePEc:pra:mprapa:17396

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Related research

Keywords: Productivity; credit risk; leverage; banking;

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References

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  1. Gary Gorton & Richard Rosen, 1994. "Corporate Control, Portfolio Choice, and the Decline of Banking," Center for Financial Institutions Working Papers 95-09, Wharton School Center for Financial Institutions, University of Pennsylvania.
  2. Leightner, Jonathan E. & Lovell, C. A. Knox, 1998. "The Impact of Financial Liberalization on the Performance of Thai Banks," Journal of Economics and Business, Elsevier, vol. 50(2), pages 115-131, March.
  3. Shrieves, Ronald E. & Dahl, Drew, 1992. "The relationship between risk and capital in commercial banks," Journal of Banking & Finance, Elsevier, vol. 16(2), pages 439-457, April.
  4. Jacques, Kevin & Nigro, Peter, 1997. "Risk-based capital, portfolio risk, and bank capital: A simultaneous equations approach," Journal of Economics and Business, Elsevier, vol. 49(6), pages 533-547.
  5. Gilbert, R. Alton & Wilson, Paul W., 1998. "Effects of Deregulation on the Productivity of Korean Banks," Journal of Economics and Business, Elsevier, vol. 50(2), pages 133-155, March.
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Cited by:
  1. Das, Abhiman & Ghosh, Saibal, 2004. "Risk, capital and operating efficiency: Evidence from Indian public sector banks," MPRA Paper 17399, University Library of Munich, Germany.
  2. Saibal Ghosh, 2005. "Does leverage influence banks' non-performing loans? Evidence from India," Applied Economics Letters, Taylor & Francis Journals, vol. 12(15), pages 913-918.

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