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Title: Analysing bank stability in India: Evidence from 2007/08-2016/17
Authors: Gulati, Rachita
Singh Nirmal
Published in: Journal of Applied Finance and Banking
Abstract: This paper develops an index of bank stability for 66 commercial banks operating in the Indian banking industry for the period 2007/08-2016/17. An index is obtained by combining five dimensions, namely capital adequacy, asset quality, management efficiency, earning capacity and liquidity. The choice of dimensions is derived from the CAMEL framework as defined by the Reserve Bank of India, which is the modus operandi for measurement of banking stability. The aggregation of dimensions is done using the weights calculated by employing PCA approach. The empirical findings reveal that an improvement is seen among Indian banks in terms of stability in the early years of the sample period. A higher value of a bank stability indicator is observed in 2008/09, and the index value showed a decline from 2008/09 onwards. The categorization of banks into high, moderate and less stability suggests that majorly banks in India are moderately stable, with the number of banks belonging to less stable category risen from 7 in 2007/8 to 23 in 2014/15. The results further suggest that the high stable category is mainly dominated by the foreign banks and none of the public sector bank belongs to this category for the entire study period. The condition of public sector banks is found to be pitied on the dimensions of asset quality and profitability, while private and foreign banks fared relatively better on these two fronts. Liquidity condition remained more or less stable for Indian banks.
Citation: Journal of Applied Finance and Banking (2019), 9(6): 101-125
Issue Date: 2019
Publisher: International Scientific Press
Keywords: Bank stability
Indian banks
Composite index
Principal Component
ISSN: 17926580
Author Scopus IDs: 26221190300
Author Affiliations: Gulati, R., Nirmal S., Department of Humanities and Social Sciences, Indian Institute of Technology Roorkee, Roorkee, India
Corresponding Author: Department of Humanities and Social Sciences, Indian Institute of Technology Roorkee India;
Appears in Collections:Journal Publications [HS]

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