A Study on the Impact of Capital Adequacy Ratio on Net Non-Performing Assets of Indian Public Sector Banks for the Preceding Five Financial Years

Abstract

Purpose: The level of Capital Adequacy Ratio (CAR) indicates best the soundness of the banking sector of a nation. The purpose of this study is an effort to look into the impact of CAR on the Net NPAs of all Indian public sector banks across the five preceding financial years and among the banks.

Methodology: All the 12 public sector banks at present have been considered for the study. The analysis is based on secondary data collected from the Indian premier bank i.e., RBI website, money control, and other concerned websites. Karl Pearson’s Coefficient of Correlation has been used as the sole statistical tool with its usual notation. Further, refinement of the result is done by categorising the derived Correlation Coefficients as ‘High Degree Positive’, ‘High Degree Negative’, and ‘Moderate Degree Negative’.

Design/Analysis: The research is exploratory research and has employed secondary data for the purpose of analysis. The Population Size N=12(Total Number of Public Sector Banks at present) and sample size n=12 implies that 100% of the population is selected as samples.

Results: The research result highlighted that from 2020 to 2024 in a span of 5 financial years, pertaining to the individual banks are concerned, out of 12 public sector banks, only 2 banks i.e., Canara Bank and Bank of India have a high degree of Positive Correlation between CAR and Net NPAs over the preceding five financial years, the remaining 10 banks are having either high degree negative or moderate degree negative correlation between their respective CAR and Net NPAs. As far as the calculation of the Correlation Coefficient of all the 12 public sector banks put together is concerned it is having moderate degree of negative correlation for the preceding five financial years

Originality/Value:

The research undertaken is thought-provoking as the study period follows the NPA management towards which by and large everyone is curious. There is no such previous study that has looked at the perspective of the Correlation between CAR and Net NPAs point of view.

Type of Paper: The research article is exploratory where a serious effort is made to explore about the existing relationship between CAR and Net NPAs of public sector banks in India.