Credit rating and bank behavior in India: Possible implications of the new Basel accord (original) (raw)
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Credit Rating and Bank Behaviour in India: Possible Implications of the New Basel Accord
The Singapore Economic Review, 2004
The paper examines the impact of credit rating on capital adequacy ratios of Indian state-owned banks using quarterly data for the period 1997:1 to 2002:4. To this end, a multinomial logit model with multi credit rating indicators as dependent variable is estimated. The variables that can impinge upon capital adequacy ratio have been used as explanatory variables. Two separate models — one for long-term credit rating and another for short-term credit rating — have been estimated. The paper concludes that, both for short-term as well as for long-term ratings, capital adequacy ratios are an important factor impinging on credit rating of Indian state-owned banks.
BANK REGULATION AND CREDIT QUALITY IN INDIAN BANKING: A QUANTITATIVE EVALUATION
There exists meaningful inter-linkages among economic and financial variables such that the variation in the credit quality at the macro level can be explained. Both the economic factors and also the bank level factors play a critical role in determining the credit quality of assets. This study undertakes an empirical analysis for finding the impact of economic and financial factors on banks non-performing loans. It provides a framework for analysis of underlying default behavior of borrowers at the bank level in terms of banks individual characteristics and also due to the presence of other macroeconomic indicators. We conclude that a positive outlook on economic growth on banks would favour loan repayment response of borrowers in order to maintain credit worthiness and credit quality. Rising capital adequacy ratio and higher credit deposit ratio can jointly help improve the portfolio credit quality. The results of the study are in line with banking literature and provide an important insight for banks lending behavior.
A study on economic factors affecting credit ratings of Indian companies
Investment Management and Financial Innovations, 2019
The objective of the research carried out is to understand the impact of selected economic variables (such as Crude Oil Price, GDP, Industrial Production, Exchange Rates, and Inflation) on credit rating of Indian companies. The sample comprises of 120 rating observations during the period 2012-2016 for a total of 24 companies of India. Measurement of central tendency-descriptive statistics is used where credit rating is used as dependent variable and five economic factors viz. Crude Oil Price, GDP, Industrial Production, Exchange Rates, and Inflation as the independent variables. Results from the analysis indicate that the credit rating responds in both linear, as well as nonlinear manner, to selected economic factors. Economic factors such as GDP, Industrial Production, and Exchange Rates have a linear relationship to credit rating, whereas Crude Oil price and Inflation have a non-linear impact upon the credit rating.
The role of the banks' rating system in the allocation of loans
International Review
The subject of this paper is the analysis of the application of banking internal credit risk measurement models for the purpose of calculating the minimum regulatory capital. The Basel Committee established proposals for an internal rating-based approach (IRB approach-internal rating-based) to capital requirements for credit risk. Such an approach, which relies on the bank's internal assessment of counterparties and exposures, can ensure two key objectives: the first is additional risk sensitivity, in which capital requirements based on internal ratings can be much more sensitive on the drivers of credit risk of economic losses in the banking portfolio; the second is incentive compatibility, where the appropriate structure of the RBI approach can provide a framework that encourages banks to continue to improve their internal risk management practices. The internal ranking approach aims to improve the safety and soundness of the financial system. The paper defines the terminology...
Banks and Bank Systems, 2011
This paper aims to integrate the theory of bank financial performance with the practice of bank ratings. The paper studies the effect of bank capital structure and financial indicators in Middle Eastern commercial banks associated with high and low ratings issued by Capital Intelligence (CI). The authors also investigate how bank capital structure and financial indicators can be differentiated between banks with high and low ratings, using the multinomial logit technique. A sample of 65 rated commercial banks from eleven countries is used. The article focuses on commercial banks in order to avoid comparison problems between various types of banks. The data is taken from the Bankscope database and covers the period of 1994-2007. The results reveal that the financial indicators of the highly-rated banks are associated with decreases in the ratio of impaired loans to gross loans, the ratio of loan loss reserve to gross loans, the ratio of non-interest expenses to total assets, the ratio of net loans to deposits and short-term funding and the ratio of net loans to total assets. In contrast, these financial indicators are allied to an increase in the ratio of non-operating income to net income, the gap ratio, the interbank ratio and the equity ratio. The robustness of the results is quite obvious since the financial indicators associated with highly-rated banks are the opposite of those associated with low-rated banks. In view of the findings, some policy implications can be drawn that may be useful for bank management and policymakers in the Middle East region.
Credit Risk and Public and Private Banks’ Performance in India: A Panel Approach
Researchers World : Journal of Arts & Science and Commerce(RWJASC), 2018
The study is mainly concerned with Credit Risk and Public and Private Banks' Performance in India and uses panel data of 40 commercial banks, comprising of 24 public and 16 private banks which were listed on Bombay Stock Exchange during the study period. The study employs various credit risk ratios as independent variables and three performance indicators as dependent variables for a period of 16 years from 2000-01 to 2015-16.
International Journal of Scientific & Technology Research, 2019
The main objective of the study is to examine the credit risk measures of the select public and private sector banks in the post financial crises period. The study period covers ten years (post financial crisis period) from 2008-2009 to 2017-2018. For the purpose of the study, For the purpose of the study, top ten public and private sector banks have been selected based on the highest share in Nonperforming Assets. From public sector banks namely, the State Bank of India, Punjab National Bank, IDBI Bank, Bank of India, Bank of Baroda, Union Bank of India, Canara Bank, Central Bank of India, Indian Overseas Bank and UCO Bank and from the private sector banks namely, ICICI Bank, Axis Bank, HDFC Bank, Jammu and Kashmir Bank, Kotak Mahindra Bank, Karur Vysya Bank, Federal Bank, Yes Bank, Lakshmi Vilas Bank, and South Indian Banks are chosen for the study. The data analysis was done using ratio analysis and statistical tools like mean, standard deviation, co-efficient of variation, compo...
Determinants of Credit Rating and Optimal Capital Structure among Pakistani Banks
The Romanian Economic Journal, 2016
Firm’s credit rating and optimal capital structure are directly related. Firms with high crediting rating tend to finance more by debts. However, there is no appropriate figure available for optimal capital structure in literature. Firms mostly decide mix of debt and equity based on its operating environment. Knowing fact of high credibility among locals and lower costs associated with debts, managers prefer debts to equity. This paper used factors like profitability, liquidity, firm’s size and leverage, to determine crediting rating of firms. This paper has used data from balance sheets of top twenty banks in Pakistan for last seven years. It was found that profitability and liquidity have negative impacts on credit rating of banks in Pakistan, while size and leverage being more significant have positive correlation with credit rating.
Credit Growth and Response to Capital Requirements: Evidence from Indian Public Sector Banks
Economic and political weekly
This paper makes an attempt to assess the impact of imposition of uniform capital requirement norm on flow of credit to the business sector by the most important segment of the Indian banking sector, i.e., Indian public sector banks. A simple decomposition analysis of growth in assets portfolio as well as a model based analysis of credit growth for the Indian public sector banks corroborated that (a) in the post reform period, public sector banks did shift their portfolio in a way that reduce their capital requirements and (b) adoption of stricter risk management practice in respect of bank lending in the post reform period and its interplay with minimum capital requirements (regulatory pressure)have had a dampening effect on the overall credit supply.