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Basel III capital regulations and bank profitability

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  • Vighneswara Swamy

Abstract

This study models the impact of new capital regulations proposed under Basel III framework on bank profitability in India by constructing a stylized representative bank's financial statement. It shows that, with an increase in the capital ratio in the context of new capital regulations, the banks tend to experience a rise in interest income. The results indicate that in the case of scheduled commercial banks, assuming that RWAs are unchanged, for 1‐percentage point increase in capital ratio, interest income would rise by 17 percentage points and would go up to an extent of 62 percentage points for six‐percentage‐point increase assuming that the risk‐weighted assets are unchanged. It also provides the estimations for different groups of banks and the scenarios of changes in the risk‐weighted assets, and changes in the capital ratios.

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  • Vighneswara Swamy, 2018. "Basel III capital regulations and bank profitability," Review of Financial Economics, John Wiley & Sons, vol. 36(4), pages 307-320, October.
    • Handle: RePEc:wly:revfec:v:36:y:2018:i:4:p:307-320
    DOI: 10.1002/rfe.1023
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    2. Martin Bolfek & Karmen Prtenjača Mažer & Berislav Bolfek, 2024. "What Are the Differences in the Area of Profitability and Efficiency When Early and Late Adopters Are Analyzed Regarding the Basel III Leverage Ratio?," JRFM, MDPI, vol. 17(1), pages 1-17, January.
    3. Damilola Oyetade & Adefemi A. Obalade & Paul-Francois Muzindutsi, 2022. "The Impact of Changes in Basel Capital Requirements on the Resilience of African Commercial Banks," Scientific Annals of Economics and Business (continues Analele Stiintifice), Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, vol. 69(1), pages 111-132, January.

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