Dynamics of Risk Factors Affecting the Capital Adequacy Ratio with Special Reference to UCO BankAuthor : Preeta Sinha and Protik Basu
Volume 8 No.2 April-June 2019 pp 10-13
To reinforce the stability of the financial system, policy makers and the Basel committee have proposed Basel accord to ensure that financial institutions maintain sufficient capital buffers. Basel III framework emphasizes on sustained increase in bank capital in order to absorb the potential credit, market and operational risks. The capital adequacy requirement under Basel III norms are directly linked to the PCA (Prompt Corrective action) framework which has disrupted the flow of credit in the economy. Market risk, Credit risk, Operational risk and deposits are some of the factors affecting the capital adequacy ratio (CAR) which influences the bank performances. This study aims at analysing the most important factor responsible for the shrinking liquidity due to adherence of stringent capital adequacy ratio imposed by RBI. Currently 11 public sector Banks out of 21 PSUs under PCA has sequentially shrunk their loan book including UCO Bank. The bank’s asset quality has worsened over the years. Using regression analysis, this paper seeks to study the major determinants of Capital Adequacy ratio using data sets for the period from 2009 to 2018 of UCO bank. The data was collected from the financial reports of the UCO bank for the aforesaid period. Among the parameters considered, it was found that deposits affect the CAR the most and market risk has the lowest impact on CAR.
Capital Adequacy Ratio, Basel Norms, Credit Risk, Market Risk
 Ariss, R. T. & Sarieddine, Y. (2007). Challenges in implementing capital adequacy guidelines to Islamic banks, Journal of Banking Regulation, 9(1), 46-59.
 RBI Report (2018). RBI Report on trend and Progress of banking in India (2017-18).
 Odunga, R. M. & Nyangweso P. M. (2013). Credit Risk, Capital Adequacy and Operating Efficiency Of Commercial Banks in Kenya, International Journal of Business and Management Invention, 6-12.
 Leventides, J. & Anna, D. (2015). The Impact of the Basel Accord on Greek Banks: A Stress Test Study, Journal of Risk and Financial Management, 181-197, Retrived from http://doi:10.3390/jrfm8020181
 Murithi, J. G., Waweru, K. M. & Muturi, W.M. (2016). Effect of credit risk on Financial Performance of commercial Banks Kenya, IOSR journal of Economics and Finance, 7(4), 72-83, Retrieved from: http://doi: 10.9790/5933-0704017283.
 Lin, Huey-Yeh. & Chang, Hsiao-Yi. (2016). Analysis of the Correlation between Operational Risks and Operational Performance: Results obtained by comparing Independent Banks with the Financial Holding Subsidiary Banks, International Journal of Business and Commerce. 4(8), 1-16.
 Homolya, D. (2009). The impact of the capital requirements for operational risk in the Hungarian banking system, MNB Bulletin
 Gabriel O Abba & Okwa, E. (2018), Determinants of Capital Adequacy Ratio of Deposit Money Banks in Nigeria, Journal of Accounting &Marketing, 7(2), 1-7, Retrieved from: http://doi: 10.4172/2168-9601.1000271.
 Mendoza, R., & Paolo, J. (2017). The Effect Of Credit Risk And Capital Adequacy On The Profitability Of Rural Banks In The Philippines, Scientific Annals of Economics and Business, 64(1), 83-96, Retrieved from: http://: 10.1515/saeb-2017-0006.
 Raharjo, P. G., Hakim, D. B., Manurung, A. H. and Maulana, T. N. A. (2014). Determinants of capital ratio: a panel data analysis on state-owned banks in Indonesia, Bulletin of Monetary, Economics and Banking, 16(4), 395-414.
 Leventides, J., & Donatou, A. (2015). The Impact of the Basel Accord on Greek Banks: A Stress Test Study, Journal of Risk and Financial Management, 8(1), 181-197, Retrieved from: http://: doi:10.3390/jrfm8020181.
 Muriithi, J. G., & Waweru, K. M, (2016). Effect of Credit Risk on Financial Performance of Commercial Banks Kenya, IOSR Journal of Economics and Finance,7(4), 72-83.
 Ansary, O. (2015). Determinants of capital adequacy ratio: An empirical study on Egyptian banks, Corporate ownership and control, 13(1), 806-816.