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

Articles by Saibal GhoshSubscribe to Saibal Ghosh

Market Discipline, Capital Adequacy

The policy debate with regard to financial intermediaries has focused on whether, and to what extent, governments should impose capital adequacy requirements on banks, or alternately, whether market forces could also ensure the stability of banking systems. This paper contributes to the debate by showing how market forces may motivate banks to select high capital adequacy ratios as a means of lowering their borrowing costs. If the effect of competition among banks is strong, then it may overcome the tendency for bank under-capitalisation that arises from systemic effects. If systemic effects are strong, regulation is required. An empirical test for Indian public sector banks during the 1990s demonstrates that better capitalised banks experienced lower borrowing costs. These findings suggest that ongoing reform efforts at the international level should primarily focus on increasing transparency and strengthening competition among banks.

Behaviour of Bank Capital

This paper looks at empirically assessing the determinants of risk-weighted bank capital ratios of state-owned banks in India during 1996-2002. Bank-specific characteristics, variables at the banking industry level and general macroeconomic factors have been taken into consideration for this purpose. The findings suggest that bank specific factors play an important role in influencing bank capital ratios in India.

Corporate Governance in Banking System

The paper examines the issue of corporate governance in the Indian banking system. Using data on banking systems for the period 1996-2003, the findings reveal that CEOs of poorly performing banks are likely to face higher turnover than CEOs of well performing ones.

Are Basel Capital Standards Pro-cyclical?

The debate on bank capital regulation has in recent years devoted specific attention to the role that bank loan loss provisions play as a part of the overall minimum capital regulatory framework. The new Capital Accord is also attempting to address provisioning practices within a broad capital regulatory framework. This paper contributes to the debate by exploring the available evidence about bank loan loss provisioning in the Indian context. Using data on state-owned banks for the period 1997-2002, we find that banks tend to delay provisioning for bad loans until too late, possibly magnifying the impact of the economic cycles on their income and capital.

Evolving International Supervisory Framework

At a time when, despite the flagship work done by the Basel Committee of Banking Supervision (BCBS), there is still limited information as to what constitutes international best practice and few internationally agreed standards, it remains a moot question whether sophistication in these standards could impair their universal application. The national supervisors continue to look upon the Basel Committee to set standards which will be universally relevant and take into account the differences in the stages of development of the banking systems and supervisory capabilities in the developing world. While the BCBS has walked this tightrope with elan till now, there is a greater need than ever before for a greater say of the non G-10 members in the setting of international standards in bank supervision.

Does Monetary Policy Have Differential State-Level Effects?

The paper examines whether monetary policy has similar effects across major states in the Indian polity. Impulse response functions from an estimated Structural Vector Auto Regression (SVAR) reveal two sets of states: a core of states that respond to monetary policy in a significant fashion vis-à-vis others whose response is less significant. The paper attempts to trace the reasons for the differential response of these two sets of states in terms of financial deepening and differential industry mix.

Banking Sector Reforms

The traditional face of banking is undergoing change - from one of mere intermediator to that of provider of quick cost effective and efficient services. In most emerging economies the banking sector is having to face difficult challenges. A discussion on these challenges and issues arising as a result of the ongoing financial sector reforms is important. What are the weaknesses in the system and how may it cope with the critical issues which will arise as a result of the reform process?

Determinants of Off-Balance Sheet Activities

The paper seeks to identify the factors influencing off-balance sheet (OBS) activities of public sector banks in India. Using pooled data analysis for the period 1995-96 to 1999-2000, the analysis reveals that (i) size plays an important role in influencing OBS activities, and (ii) higher the levels of capital and liquid assets, lower the incentive of the banks to engage in OBS activities. This is in consonance with hedging theory, which contends that the aversion to risk might be an important determinant for banks not actively engaging in OBS activities.

Bank Supervisory Arrangements

The purpose of this paper is to examine the choice of location of prudential supervision of banks. Should central banks assume this role or should there be a unified regulator covering all financial institutions? With the growing concern among central banks about the need to maintain financial stability, can such problems be effectively tackled if regulation/ supervision is vested with the central banks? The evidence.

Risk-Based Standards, Portfolio Risk and Bank Capital

Examination of the effect of risk-based standards on bank capital and portfolio risk and an attempt towards operationalising a framework for understanding the interrelationships between portfolio risk and capital in the Indian context.

Bank Response to Capital Requirements

The increased emphasis on capital regulation has raised a number of interrelated questions. First, is focusing on capital an efficient way of regulating banks? Secondly, what is the best way to structure capital regulation? Thirdly, how do banks respond to different types of capital regulation? This paper focuses on the last two questions, examining bank responses and the costs associated with these responses to capital requirements. The discussion draws heavily on international experience and concludes with an attempt to bring to bear empirically these experiences in the Indian context.

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