ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

Articles by Arindam BandyopadhyaySubscribe to Arindam Bandyopadhyay

Banks’ Credit Risk Analysis of Indian Firms

A firm-level panel data analysis of selected BSE top 200 companies for 2017–21 is presented to link the environmental, social, and governance ratings and carbon dioxide emissions with their default risk and solvency position. The results indicate strong empirical evidence that the firm’s risk of default is linked to its environmental performance along with the level of carbon emission. The findings will enable banks to establish a linkage between credit risk and climate change risk. This will assist banks as well as policymakers to adjust borrower-level ratings and factor the impact of climate change on their capital as well as business decisions.

Why Indian Banks Need to Adopt the Basel III Internal Ratings-based Approach

As Indian banks are becoming bigger due to consolidation and through business expansion, it is necessary to adopt the advanced Basel III version for better utilisation of scarce capital and improve efficiency. The importance of Basel III internal ratings-based approach that may be adopted by the banks to strengthen their internal credit risk management framework is highlighted in this article. A better understanding of risk inherent in business will not only improve the banks’ underwriting standards but also enable them to accelerate growth and enhance risk adjusted performance.

Predicting the Probability of Default for Banks’ Expected Credit Loss Provisions

Banks can effectively utilise the internal credit-rating migration trend to predict the future risk of default for corporate loans. This will enable them to more proactively identify credit impairment and make necessary forward-looking loss provisions.

How Should Banks Estimate Their Expected Loan Loss Provisions to Survive in Difficult Times?

This article explains how banks can use their forward-looking internal credit risk estimates and apply on loan cash fl ows over different time horizons and assess the impact on loss provisions. Such an estimate based on longer historical data will enable the banks to better foresee the uncertainty pertaining to repayment status of their loans and make loss provisions in a more proactive manner.

The Accuracy of Agency Ratings

Recently, regulators as well as market participants have raised serious concerns about the validity of external credit ratings in predicting the true status of corporate default risk in India. A comparison is made of the historical rating trends in India along with the global benchmarks. The credit rating agencies need to provide more insights about corporate rating movements to enable banks to derive early warning signals about inherent credit risk. The kind of risk indicators that need to be disclosed has been highlighted.

Effect of Capital Structure on Firms' Product Market Performance

This paper empirically examines the effect of a firm?s capital structure on its product market outcome. The strategic consideration in the product market may induce Indian corporates to take on higher debt in order to gain strategic advantage. Using a balanced panel of 538 Indian manufacturing firms over the period 1989 to 2000, the paper studies the relationship between short- and long-term debt and sales performance (export as well as total sales). In the case of long-term debt, firms take time to build their infrastructure. Hence, considering a longer time horizon of two years and seven years of taking the loan, the paper finds that long-term debt boosts sales growth of firms belonging to the top 50 and large business houses. However, long-term debt is inconsequential for total growth of sales for smaller group and unaffiliated firms. The study finds empirical evidence on the interplay between the financial structure and product market performance in the Indian corporate sector.

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