An Impact Of Capital Adequacy Ratio On The Profitability Of Commercial Banks In India

Abstract

Studies have also indicated that there is a positive correlation between capital adequacy ratio and profitability of banks. An increase in the capital adequacy ratio leads to an increase in the profitability and vice versa. The objective of this research is to investigate the effects of capital adequacy ratio on the financial performance of Indian commercial banks. The secondary data have been utilized for the purposes of this study. Capital adequacy is the independent variable and the profitability of commercial banks is the dependent variable for the study. The return on assets and return on equity and net interest margin are the proxies for the profitability. The information was gathered from the audited financial reports available at money control.com and investing.com for selected largest 16 banks between 20172018 to 2022-2023. The Linear Regression model was also used for the analysis of data. The results of the study revealed that capital adequacy ratio significantly predict return on assets, return on equity and net interest margin. An increase in the capital adequacy ratio leads to an increase in the return on assets, return on equity and net interest margin. An increase in return on assets, return on equity and net interest margin are reflected in an increase in the profitability of banks. Thus, it may be concluded that a movement in capital adequacy ratio has an impact on the profitability of commercial banks.