Capital adequacy determinants of Indian banks listed on the Bombay Stock Exchange

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This study examines the influence of corporate-specific factors and external factors on capital adequacy of Indian banks listed on the Bombay Stock Exchange (BSE). This study used a GMM estimation (pooled, fixed, and random) for the period 2009–2018 to study thirty-seven Indian listed commercial banks. Banks’ capital adequacy (CAAD) is used as a dependent variable measured by equity to total assets. While corporate specifics factors include bank size, asset quality, liquidity ratio, deposit ratio, asset management, operating efficiency, return on assets, net interest margin, and non-interest income, external factors are economic activity, exchange rate, and interest rate. The results of this paper found that the deposit ratio, asset management, bank size, and operating efficiency are the main factors influencing banks’ CAAD of Indian listed firms during the period of the study. The outcomes revealed that the deposits ratio, asset management, and bank size have a negative and significant influence on banks’ CAAD, while operating efficiency has a positive and significant impact on CAAD. In terms of external indicators, the results revealed that gross domestic product and interest rate have a negative and significant effect on CAAD of Indian listed banks, except that the exchange rate has a positive and significant influence on CAAD.

Acknowledgment
The authors would like to thank the Arab Open University, Kingdom of Saudi Arabia, for supporting this research paper.

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    • Table 1. Definitions of the variables
    • Table 2. Descriptive analysis
    • Table 3. Correlation and diagnostics of the multicollinearity test
    • Table 4. Multiple regression analysis
    • Table 5. Robust regression
    • Table 6. GMM estimation
    • Conceptualization
      Nabil Ahmed Mareai Senan, Fozi Ali Belhaj, Mamdouh Abdulaziz Saleh Al-Faryan, Eissa A. Al-Homaidi
    • Formal Analysis
      Nabil Ahmed Mareai Senan, Ebrahim Mohammed Al-Matari, Mamdouh Abdulaziz Saleh Al-Faryan
    • Investigation
      Nabil Ahmed Mareai Senan, Fozi Ali Belhaj, Mamdouh Abdulaziz Saleh Al-Faryan, Eissa A. Al-Homaidi
    • Methodology
      Nabil Ahmed Mareai Senan, Ebrahim Mohammed Al-Matari, Mamdouh Abdulaziz Saleh Al-Faryan, Eissa A. Al-Homaidi
    • Supervision
      Nabil Ahmed Mareai Senan, Fozi Ali Belhaj, Eissa A. Al-Homaidi
    • Validation
      Nabil Ahmed Mareai Senan, Ebrahim Mohammed Al-Matari, Mamdouh Abdulaziz Saleh Al-Faryan, Eissa A. Al-Homaidi
    • Writing – review & editing
      Nabil Ahmed Mareai Senan, Mamdouh Abdulaziz Saleh Al-Faryan
    • Data curation
      Fozi Ali Belhaj, Eissa A. Al-Homaidi
    • Project administration
      Fozi Ali Belhaj
    • Resources
      Fozi Ali Belhaj, Ebrahim Mohammed Al-Matari
    • Software
      Fozi Ali Belhaj, Ebrahim Mohammed Al-Matari
    • Visualization
      Fozi Ali Belhaj, Mamdouh Abdulaziz Saleh Al-Faryan, Eissa A. Al-Homaidi
    • Writing – original draft
      Fozi Ali Belhaj, Ebrahim Mohammed Al-Matari, Eissa A. Al-Homaidi