Nov'20
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The IUP Bank Management
ISSN: 0972-6918
A 'peer reviewed' journal indexed on Cabell's Directory,
and also distributed by EBSCO and Proquest Database
Management is a quarterly journal that focuses on risk management, forex markets, retail banking, HRD and leadership, banking, supervision, convergence of financial services and E-Banking.
Do Banks with High Capital Adequacy Perform Better? Evidence from Scheduled Urban Cooperative Banks in India
Built-in jeopardy in the operations of banks due to their fiduciary responsibility, high leverage, and liquidity gaps necessitates that their financial position and performance remain stable and healthy. The regulatory nudge towards capital adequacy for banks has been intended to make them financially sound. While academic research on the relationship between capital adequacy and financial performance of banks remains inconclusive, this paper reexamines the subject from the angle of intra-group differences in the financial performance of banks in relation to their level of capital adequacy. The study finds that the scheduled Urban Cooperative Banks (UCBs) in India with poor capital adequacy, or with capital ratios slightly above the regulatory minimum, do not exhibit better performance in any of the select financial parameters than their other counterparts, and show inferior performance against certain parameters. However, banks with very high capital ratios operate with higher margins but fail to efficiently leverage their capital funds. This study indicates that an optimum level of capital adequacy of around 15% is best suited, along with an equity multiplier of 15. This may help the scheduled UCBs to improve their return on equity, and strengthen their financial soundness and performance.
Does Cost Efficiency Influence Bank Capital Formation and Cost of Bank Credit? Evidence from China and India
In response to the Global Financial Crisis (GFC) of 2007-2009, stringent capital requirements in the form of Basel III Accord have been implemented for the banking sector across the globe. Critics argue that banks may face difficulty in raising costly equity and may either decrease loans or charge higher cost on bank credit. We argue that cost efficiency can help banks to accumulate capital through profits, while at the same time, enable them to charge lower cost on bank credit. Analyzing a panel dataset of 224 banks from China and India over the period 2007-2015, we find robust evidence that cost efficiency has a positive impact on bank capital formation and a negative effect on the cost of bank credit. We further observe that the recent GFC has a substantial positive impact on banks capital ratios and the cost of bank credit. Chinese banks are more cost-efficient and highly concentrated compared to Indian banks. We draw important implications for bank regulators and banks.
Financial Technology and the Evolving Landscape of Banking and Financial Sector
Technology-driven financial services transaction is profoundly changing the nature of banking. The developments in various domains like payments, lending, credit assessments, etc. are being driven by the ability to extract and process vast amount of data and predominantly by firms outside the finance industry. Financial Technology is a rapidly growing industry, with significant investments and research being undertaken. In fact, SSRN (Social Sciences Research Network) reports that FinTech-related research is now the fastest growing research topic (David, 2018). Traditionally, banks have neither been pioneers nor at the forefront of driving technological innovations in financial services and products. Incumbents, including banks and other firms in financial services sector, are paying close attention to the FinTech space not only to implement some of the emerging technologies to improve their services but also to determine competitor threats to their ongoing business strategies. The purpose of this paper is to draw the attention of banks executives and technology officers to the current gaps in banking technology infrastructure and the urgency warranted to incorporate emerging financial technologies to drive business strategy.
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