Commercial bank capital and risk in India: Does financial crisis matter?

Figures & data

Table 1. Bank capital ratio across the banks classified on the basis of size, profitability, non-performing asset and ownership during the period 1996–97 to 2013–14

	Ownership			Size
Year	Public-sector banks	Private-sector banks	Foreign banks	Large-size banks	Medium-size banks	Small-size banks
1997	9.43	12.02	41.00	9.06	10.39	45.36
1998	10.85	12.18	41.67	10.76	11.56	44.92
1999	10.64	12.22	47.48	10.52	11.41	51.45
2000	10.85	12.20	31.81	10.62	11.85	34.00
2001	10.85	11.59	33.24	10.70	11.49	35.37
2002	11.25	12.14	41.00	11.25	12.05	43.60
2003	12.17	12.16	35.27	12.43	12.29	36.97
2004	13.00	13.77	38.12	13.09	13.01	40.92
2005	12.73	12.58	40.10	12.45	13.66	41.78
2006	12.23	12.28	45.95	12.21	12.66	48.63
2007	12.26	12.30	42.63	12.16	12.54	45.25
2008	13.20	13.47	39.49	12.90	14.40	41.17
2009	13.22	14.44	49.90	13.59	14.26	52.77
2010	13.26	15.32	51.69	14.30	14.90	54.07
2011	13.37	14.61	52.22	14.14	14.41	54.88
2012	12.98	14.25	52.97	13.66	14.11	55.76
2013	12.15	14.38	48.32	13.20	14.43	49.95
2014	11.12	14.45	43.83	12.17	14.27	45.15
	Profitability			Non-performing assets (NPA)
Year	High-profit banks	Medium-profit banks	Low-profit banks	High-NPA banks	Medium-NPA banks	Low-NPA banks
1997	21.58	10.89	31.76	11.39	14.15	39.02
1998	37.85	11.24	16.95	12.94	18.33	35.58
1999	30.95	11.2	30.29	14.82	13.53	44.75
2000	31.89	11.86	11.78	15.38	17.31	23.33
2001	28.29	12.33	16.12	16.44	16.55	24.09
2002	29.41	14.47	22.09	27.89	11.56	26.72
2003	29.19	14.82	16.81	24.20	12.43	24.52
2004	26.98	19.92	19.20	22.45	15.86	28.17
2005	26.87	18.48	21.69	20.50	16.68	30.22
2006	34.97	15.79	21.59	17.24	16.21	39.68
2007	38.96	16.33	13.27	14.29	15.53	39.89
2008	38.73	15.60	12.96	16.49	13.60	38.30
2009	25.49	18.19	36.22	15.68	13.50	51.39
2010	24.24	17.13	41.35	17.46	14.31	51.38
2011	28.26	39.85	13.52	18.62	14.28	50.33
2012	32.28	14.68	35.69	19.43	15.00	48.81
2013	26.84	17.24	32.77	18.97	14.86	43.48
2014	23.11	16.79	31.07	14.53	15.24	41.67

Note: Author’s own calculation

Table 2. Summery statistics

	Public-sector banks		Private-sector banks		Foreign banks
Variables	Mean	SD	Mean	SD	Mean	SD
CR	1.44	2.45	0.82	1.23	18.50	11.87
CAR	11.36	3.72	12.33	4.65	40.94	19.66
NPA	3.75	0.79	2.97	3.23	3.56	8.15
LLR	1.26	1.01	1.13	0.96	1.85	6.05
ZRISK	2.54	1.65	4.84	5.56	-	-
SZ	13.21	1.15	11.59	1.50	9.52	2.22
NIM	2.95	19.13	3.00	1.09	13.65	61.04
LAR	51.42	11.01	50.98	13.21	36.17	6.05
BL	14.97	15.04	32.11	6.22	86.66	5.21

Note: Authors own calculation. CAR, capital adequacy ratio; ZRISK, bank risk index; NPA, non-performing asset; SZ, log of total asset; NIM, net interest margin; LAR, loan-to-asset ratio; BL, bank liquidity.

Table 3. Pair wise t-statistics for selected variables by bank groups: public-sector banks, private-sector banks and foreign banks

Variables	Public versus Private Sector Banks	Private versus Foreign Banks	Public versus Foreign Banks
CR	6.27***	5.64***	12.32**
CAR	−4.74***	−22.52***	−21.80***
NPA	2.28*	−3.81**	−2.37*
LLR	7.61**	1..82	4.59**
SZ	42.24***	24.86***	77.24***
NIM	−0.40	−19.06***	−19.00***
LAR	0.69	7.92***	6.87***
BL	2.51*	−1.25	−2.39*

Note: ***, ** and* show the 1%, 5%, and 10% level of significance, respectively.

Table 4. Correlation matrix of all the independent variables for all types of banks

	Public-sector banks
Variables	NPA	LLR	ZRISK	SZ	NIM	LAR	BL	RP
NPA	1
LLR	0.02	1
ZRISK	0.24*	0.13**	1
SZ	−0.49*	0.23*	−0.25*	1
NIM	0.24*	0.31**	−0.12**	−0.30*	1
LAR	−0.39*	0.26*	0.16*	0.17	−0.43*	1
BL	−0.06	0.17*	0.46*	−0.28*	−0.27*	−0.14*	1
RP	0.49*	0.06	0.31	−0.18*	−0.07**	−0.26*	−0.04	1
	Private-sector banks
Variables	NPA	LLR	ZRISK	SZ	NIM	LAR	BL	RP
NPA	1
LLR	0.00	1
ZRISK	−0.14	0.02*	1
SZ	−0.45*	0.16**	0.07**	1
NIM	−0.09***	0.03*	0.39*	−0.15*	1
LAR	−0.20*	0.24*	0.18	0.48*	−0.01	1
BL	0.02	0.17**	0.21*	−0.19*	−0.02	−0.08	1
RP	0.30*	0.31	−0.29*	−0.14**	−0.00	−0.04	−0.07	1
	Foreign banks
Variables	NPA	LLR	SZ	NIM	LAR		BL	RP
NPA	1
LLR	0.004*	1
SZ	−0.24*	0.15**	1
NIM	0.02	0.19*	−0.12	1
LAR	−0.04	0.00	0.27*	−0.08	1		−0.09**
BL	0.03	0.23**	−0.18*	0.05*			1
RP	0.003	0.007*	0.02*	−0.02	0.05		−0.02	1

Note: *, ** and*** show the 1%, 5% and 10% level of significance, respectively.

Table 5. Panel unit-root test results

Variables	IM, Pesaran and Shin	Levin–Lin–Chu
Public-sector Banks
CR	−11.90(0.000)***	−17.20(0.000)***
CAR	−3.1057(0.0009)***	−3.0374(0.0012) ***
NPA	−3.2867(0.0005) ***	−6.8907(0.0000) ***
LLR	−3.96(0.000)***	−2.45(0.0070)***
ZRISK	−2.3495(0.0094) **	−2.0323(0.0211) **
Private banks
CR	−13.43(0.0000)***	−34.23(0.0000)***
CAR	−1.6094(0.0538) * *	−2.6054(0.0046) *
NPA	−8.6780(0.0000) ***	−20.3603(0.0000) ***
LLR	−2.67(0.0038)**	−2.49(0.0062)**
ZRISK	−3.9084(0.0000) ***	−1.4040(0.0402) **
Foreign banks
CR	−15.87(0.0000)***	17.12(0.0008)***
CAR	−3.8004(0.0001) ***	−7.6917(0.0000) ***
NPA	−2.9723(0.0015) ***	−7.8403(0.0000) ***
LLR	−1.54(0.0006)***	−2.47(0.0067)**

Notes: Number in the parenthesis shows the p-values.

***Significance at 5% level and **significance at 1% level.

Table 6. Results of DH causality test of risk and capital ratios

Null hypothesis	W-Stat	Zbar-Stat	Prob Value
Panel A: Causality between risk and capital ratio for public-sector banks
NPA doesn’t homogeneously cause CR	8.2834	9.7231	0.0000
CR doesn’t homogeneously cause NPA	3.2089	1.2665	0.2032
LLR doesn’t homogeneously cause CR	3.7011	2.1039	0.0355
CR doesn’t homogeneously cause LLR	2.6076	0.2750	0.7845
Panel B: Causality between risk and capital ratio for private-sector banks
NPA doesn’t homogeneously cause CR	8.6934	8.6512	0.0000
CR doesn’t homogeneously cause NPA	2.7439	4.5637	0.1251
LLR doesn’t homogeneously cause CR	1.1275	2.0198	0.0000
CR doesn’t homogeneously cause LLR	3.3845	1.1437	0.1523
Panel C: Causality between risk and capital ratio for foreign banks
NPA doesn’t homogeneously cause CR	7.5776	8.3419	0.0000
CR doesn’t homogeneously cause NPA	3.5231	2.1380	0.2530
LLR doesn’t homogeneously cause CR	5.2346	3.5712	0.0379
CR doesn’t homogeneously cause LLR	2.3098	1.1098	0.3310
Panel A: Causality between risk and capital adequacy ratio for public sector banks
NPA doesn’t homogeneously cause CAR	9.2423	5.4564	5E-08
CAR doesn’t homogeneously cause NPA	5.2833	1.3358	0.1816
LLR doesn’t homogeneously cause CAR	3.2713	2.1739	0.0796
CAR doesn’t homogeneously cause LLR	2.6025	0.2712	0.7845
Panel B: Causality between risk and capital adequacy ratio for private Sector Banks
NPA doesn’t homogeneously cause CAR	5.9667	1.7032	0.0885
CAR doesn’t homogeneously cause NPA	3.3595	−0.5546	0.5792
LLR doesn’t homogeneously cause CAR	2.7865	3.4635	0.0642
CAR doesn’t homogeneously cause LLR	3.8812	0.6112	0.8935
Panel C: Causality between risk and capital adequacy ratio for foreign Banks
NPA doesn’t homogeneously cause CAR	3.6427	1.8754	0.0607
CAR doesn’t homogeneously cause NPA	1.8841	−0.8768	0.3806
LLR doesn’t homogeneously cause CAR	3.5812	2.1635	0.0051
CAR doesn’t homogeneously cause NPA	2.3452	0.09843	0.4671

Note: Authors own calculation.

Table 7. GMM estimation results in the whole period (1997–2014)

Variables	Public sector Banks		Private-sector banks		Foreign banks
Panel A: Dependent variable: Capital ratio (total capital/total assets)
ΔCRt –1	0.76***	0.77***	0.58***	0.57***	0.54***	0.54***
	(23.97)	(27.61)	(20.15)	(9.91)	(11.76)	(5.36)
ΔNPA	0.36**		0.23*		0.12**
	(1.99)		(2.31)		(2.43)
ΔLLR		0.23**		−0.06**		− 0.04**
		(3.08)		(−1.99)		(−2.58)
SZ	−0.09	−0.14	−0.41***	−0.45***	−6.64**	−6.82**
	(−0.36)	(−1.12)	(−3.27)	(−2.60)	(−5.04)	(−2.63)
NIM	−0.12**	−0.18**	0.008**	0.16**	−0.13**	−0.14**
	(−2.31)	(−2.59)	(2.02)	(3.12)	(−2.93)	(−2.16)
LAR	−0.02**	−0.01	0.01	0.01	0.04	0.04
	(−1.67)	(−1.37)	(1.45)	(1.35)	(1.27)	(1.38)
BL	0.01***	0.01***	−0.002	−0.0003	0.009	0.009
	(4.40)	(5.67)	(−0.17)	(0.01)	(0.79)	(1.60)
RP	0.82	0.86	−0.09	−0.05	−2.93	−2.60
	(1.03)	(1.30)	(−0.19)	(−0.32)	(−0.81)	(−0.58)
Wald test	χ ^2(7) = 356.25	χ ^2(7) = 680.58	χ ^2(7) = 233.59	χ ^2(7) = 626.05	χ ^2(7) = 309.90	χ ^2(7) = 664.80
	(0.00)	(0.000)	(0.000)	(0.000)	(0.000)	(0.000)
Z2 test	1.71(0.18)	1.56(0.11)	1.13(0.17)	1.18(0.23)	1.17(0.16)	1.80(0.22)
Sargan test	χ ^2(135) = 201.84	χ ^2(135) = 213.80	χ ^2(135) = 149.09	χ ^2(135) = 185.17	χ ^2(135) = 217.34	χ ^2(135) = 179.11
	(0.12)	(0.18)	(0.18)	(0.13)	(0.17)	(0.15)
NOB	416	416	288	288	384	384
Panel B: Dependent variable: Capital adequacy ratio (total capital/risk Weighted Assets)
ΔCAR t –1	0.51***	0.64***	0.40***	0.41***	0.57***	0.61***
	(9.01)	(11.38)	(6.28)	(6.49)	(12.78)	(14.43)
ΔNPA	0.20**		0.29*		0.50**
	(5.55)		(1.77)		(1.77)
ΔLLR		2.12**		−0.47*		−0.52**
		(2.89)		(−2.34)		(−2.08)
SZ	−0.41	−0.63	−1.64***	−1.36***	−13.45**	−9.03
	(−0.88)	(−1.23)	(−3.48)	(−3.15)	(−1.92)	(−1.30)
NIM	−0.36**	−0.36**	1.40***	1.43***	−0.07**	−0.43**
	(−2.19)	(−2.02)	(7.37)	(7.49)	(−2.37)	(−1.77)
LAR	−0.04**	−0.006	−0.01	−0.02	−0.09	−0.07
	(−1.97)	(−0.03)	(−0.81)	(−1.24)	(−0.56)	(−0.45)
BL	0.02**	0.01**	0.008	0.01	−0.004	−0.007
	(2.46)	(3.00)	(1.39)	(1.58)	(−0.36)	(−0.57)
RP	−3.73***	−4.83***	−4.26**	−4.00**	−61.52***	−61.50***
	(−6.11)	(−7.46)	(−2.05)	(−1.92)	(−3.38)	(−3.45)
Wald test	χ ^2(7) = 495.77	χ ^2(7) = 399.1	χ ^2(7) = 176.36	χ ^2(7) = 173.23	χ ^2(7) = 269.30	χ ^2(7) = 264.80
	(0.00)	(0.00)	(0.00)	(0.00)	(0.00)	(0.00)
Z2 test	1.05(0.29)	1.12(0.25)	1.51(0.12)	1.54(0.12)	1.15(0.24)	1.23(0.21)
Sargan test	χ^2(135) = 170.70	χ^2(135) = 169.10	χ^2(135) = 149.09	χ ^2(135) = 152.41	χ ^2(135) =163.69	χ ^2(135) = 171.44
	(0.12)	(0.12)	(0.19)	(0.19)	(0.14)	(0.14)
NOB	416	416	288	288	384	384

Notes: Authors own calculation. For GMM each variable is in its first difference form. ***, **, * show the 1, 5 and 10% level of significance, respectively. Figures in the bracket show the Z-statistics. Wald test is a test of joint significance of the estimated coefficients, which is asymptotically distributed as chi-square under the null of no relationship and Sargan test of over identifying restrictions, which is asymptotically distributed as chi-square under the null of instrumental validity.

Table 8. GMM estimation results of capital ratio determination in the periods with and without crisis

Variables	Public-sector banks		Private-sector banks		Foreign banks
Dependent variable: Capital ratio (without crisis period 1997–2007)
ΔCR t –1	0.77***	0.76***	0.59***	0.48	0.50***	0.52***
	(18.14)	(19.04)	(11.46)	(8.60)	(6.500	(3.41)
ΔNPA	0.04**		−0.006		0.03
	(1.94)		(−0.35)		(0.53)
ΔLLR		0.12**		−0.09**		−0.13
		(2.18)		(−1.96)		(−2.47)
SZ	0.26	0.21	−0.45	−0.50	−15.67***	−16.39***
	(0.39)	(0.31)	(−1.54)	(−1.58)	(−5.58)	(−2.95)
NIM	0.27	−0.34**	0.002	−0.02	0.08	0.07
	(−1.33)	(−1.71)	(0.04)	(−0.19)	(1.24)	(1.61)
LAR	−0.01	−0.02**	0.012*	0.01	0.07	0.06
	(−1.01)	(−1.41)	(1.87)	(1.27)	(1.18)	(0.95)
BL	−0.02	−0.02***	−0.004	0.0002	0.01**	0.01**
	(−4.59)	(−3.06)	(−0.19)	(0.08)	(3.84)	2.62)
RP	0.69	0.94	−0.07	−0.04	−3.98	−4.44
	(1.33)	(1.64)	(−0.12)	(−0.22)	(−1.16)	(−1.17)
Wald test	χ ^2(7) = 451.33	χ ^2(7) = 893.31	χ^2(7) = 447.09	χ^2(7) = 620.39	χ^2(7) = 126.65	χ^2(7) = 620.39
	(0.00)	(0.00)	(0.000)	(0.000)	(0.000)	(0.000)
Z2 test	1.45 (0.14)	1.39 (0.16)	1.16(0.24)	1.26(0.20)	2.53(0.11)	2.68(0.17)
Sargan test	χ ^2(44) = 67.85	χ ^2(44) = 115.79	χ^2(44) = 60.40	χ^2(44) = 59.80	χ^2(44) = 76.12	χ^2(44) = 77.17
	(0.29)	(0.23)	(0.15)	(0.19)	(0.19)	(0.15)
NOB	233	233	162	162	216	216
With crisis period: 2008–2014
ΔCR t –1	0.33***	0.30**	0.63***	0.62***	0.15***	0.14***
	(3.46)	(2.52)	(4.63)	(4.15)	(5.84)	(5.29)
ΔNPA	0.05*		0.12***		0.07
	(1.79)		(4.55)		(0.21)
ΔLLR		0.13**		−0.06*		−0.15**
		(2.77)		(−1.75)		(−2.17)
SZ	−0.98***	−0.77**	−0.36**	−0.35**	−11.32***	−11.08**
	(−3.37)	(−2.41)	(−2.51)	(−2.18)	(4.28)	(−2.06)
NIM	0.23***	0.18**	0.01	0.06	0.001	0.001
	(3.19)	(1.87)	(0.32)	(1.13)	(0.27)	(0.10)
LAR	0.01	0.003	0.001	−0.004	−0.07	−0.06
	(1.36)	(1.51)	(0.26)	(−0.77)	(−1.17)	(−1.27)
BL	0.005	0.0009	−0.0007	0.001	−0.008	0.006
	(0.45)	(0.10)	(−0.27)	(0.47)	(−0.23)	(−0.47)
RP	−0.04	−0.02	0.04	−0.03	2.96	3.11
	(−0.19)	(−0.58)	(0.27)	(0.23)	(0.40)	(1.54)
Wald test	χ ^2(7) = 52.18	χ ^2(7) = 22.30	χ^2(7) = 110.04	χ ^2(7) = 83.48	χ ^2(7) = 16.08	χ ^2(7) = 98.81
	(0.000)	(0.000)	(0.000)	(0.000)	(0.000)	(0.000)
Z2 test	1.07	1.18	1.37	1.22	1.63	1.61
	(0.28)	(0.22)	(0.71)	(0.56)	(0.10)	(0.15)
Sargan test	χ ^2(14) = 58.38	χ ^2(14) = 47.19	χ^2(14) = 43.17	χ^2(14) = 37.67	χ^2(14) = 14.60	χ^2(14) = 14.56
	(0.16)	(0.21)	(0.11)	(0.16)	(0.40)	(0.39)
NOB	130	130	90	90	120	120

Notes: Authors own calculation. For GMM each variable is in its first difference form. ***, **, * show the 1, 5 and 10% level of significance, respectively. Figures in the bracket show the Z-statistics. Wald test is a test of joint significance of the estimated coefficients, which is asymptotically distributed as chi-square under the null of no relationship and Sargan test of over identifying restrictions, which is asymptotically distributed as chi-square under the null of instrumental validity.

Table 9. GMM estimation results of capital adequacy ratio determination in the periods with and without crisis

Variables	Public-sector banks		Private-sector banks		Foreign banks
Dependent variable: Capital adequacy ratio (without crisis Period:1997–2007)
ΔCAR t –1	0.46***	0.52***	0.22**	0.20***	0.15**	0.16**
	(5.46)	(6.38)	(2.71)	(11.55)	(2.32)	(2.40)
	0.08**		0.14*		0.18**
ΔNPA	(2.50)		(1.98)		(2.27)
ΔLLR		0.28**		−0.06**		−0.45**
		(2.47)		(−2.37)		(−2.40)
SZ	−2.66**	−3.73***	−1.08	−0.42	−8.16***	−8.62***
	(−2.57)	(−3.78)	(−1.24)	(−0.52)	(−5.68)	(−5.95)
NIM	0.10	0.25	1.79***	1.73***	0.57*	0.51
	(0.32)	(0.74)	(6.44)	(6.23)	(1.76)	(1.60)
LAR	−0.07**	−0.06**	−0.03	−0.03	0.25	−0.30
	(−3.25)	(−2.53)	(−1.27)	(−1.53)	(−0.93)	(−1.12)
BL	−0.01	−0.008	0.004	0.002	00.01	−0.01
	(−1.14)	(−0.07)	(0.47)	(0.31)	(−0.75)	(−0.59)
RP	−4.53***	−4.85***	−5.39**	−4.88**	67.41***	−72.26***
	(−6.33)	(−6.56)	(−2.59)	(−2.39)	(−4.01)	(−4.23)
Wald test	χ ^2(7) = 248.96	χ^2(7) = 218.11	χ ^2(7) = 51.69	χ ^2(7) = 49.04	χ ^2(7) = 75.34	χ ^2(7) = 77.75
	(0.000)	(0.000)	(0.000)	(0.000)	(0.000)	(0.000)
Z2 test	1.31(0.22)	0.44(0.65)	1.22(0.21)	1.28(0.19)	1.15(0.24)	1.17(0.22)
Sargan test	χ ^2(44) = 75.65	χ^2(44) = 67.85	χ^2(44) = 52.21	χ^2(44) = 58.29	χ^2(44) = 44.55	χ ^2(44) = 46.30
	(0.21)	(0.29)	(0.18)	(0.17)	(0.44)	(0.37)
NOB	233	233	162	162	216	216
With crisis period:2008–2014
ΔCAR t –1	0.56**	0.61***	0.65***	0.25***	0.17**	0.17***
	(3.39)	(4.43)	(5.97)	(5.26)	(2.49)	(6.52)
ΔNPA	0.10**		1.21**		0.27***
	(2.60)		(2.72)		(3.44)
ΔLLR		0.13**		−0.60**		−0.87**
		(2.59)		(−2.01)		(−1.99)
SZ	−5.10***	−5.42***	−2.73***	−3.48***	−25.38**	−24.61***
	(−4.01)	(−6.93)	(−4.54)	(−3.43)	(−3.30)	(−3.26)
NIM	0.93*	1.03***	0.40	0.53	0.02**	0.02**
	(2.84)	(3.13)	(0.91)	(1.21)	(2.33)	(2.33)
LAR	−0.008	0.009	0.001	0.004	−0.18*	−0.21*
	(−0.17)	(0.02)	(0.03)	(0.10)	(−1.71)	(−1.87)
BL	−0.05	−0.04	−0.03	−0.03	−0.03***	−0.03***
	(−1.10)	(−0.77)	(−1.20)	(−1.44	(−5.01)	(−5.12)
RP	−1.35**	−1.39**	−1.50	−1.89	18.74	17.85
	(−2.33)	(−6.00)	(−1.08)	(−1.40)	(1.37)	(1.31)
Wald test	χ ^2(7) = 143.67	χ ^2(7) = 461.04	χ ^2(7) = 12.50	χ ^2(7) = 16.92	χ ^2(7) = 94.07	χ ^2(7) = 94.96
	(0.000)	(0.000)	(0.08)	(0.00)	(0.00)	(0.00)
Z2 test	0.29(0.26)	1.31(0.18)	1.68(0.39)	1.08(0.27)	−1.38(0.16)	−1.54(0.12)
Sargan	χ^2(14) = 17.10	χ^2(14) = 51.68	χ^2(14) = 17.19	χ^2(14) = 17.19	χ^2(14) = 68.96	χ
test	(0.25)	(0.16)	(0.24)	(0.27)	(0.13)	^2(14) = 67.90 (0.10)
NOB	130	130	90	90	120	120

Notes: Authors own calculation. For GMM each variable is in its first difference form. ***, **, * show the 1, 5 and 10% level of significance, respectively. Figures in the bracket show the Z-statistics. Wald test is a test of joint significance of the estimated coefficients, which is asymptotically distributed as chi-square under the null of no relationship and Sargan test of over identifying restrictions, which is asymptotically distributed as chi-square under the null of instrumental validity.

Table 10. Result of DH causality test of risk and capital ratios

Causality between risk and capital ratio for public-sector and private sector banks
ZRISK doesn’t homogeneously cause CR	3.8734	2.3893	0.0171
CR doesn’t homogeneously cause ZRISK	3.2091	1.2678	0.2063
ZRISK doesn’t homogeneously cause CR	8.4687	8.3392	0.0000
CR doesn’t homogeneously cause ZRISK	3.1283	1.4763	0.3941,
Causality between risk and capital adequacy ratio for public-sector and private sector banks
Null hypothesis	W-Stat	Zbar-Stat	Prob Value
ZRISK doesn’t homogeneously cause CAR	2.5365	3.7130	0.0002
CAR doesn’t homogeneously cause ZRISK	1.0348	−0.3572	0.7209
ZRISK doesn’t homogeneously cause CAR	4.3562	7.1934	6E-13
CAR doesn’t homogeneously cause ZRISK	0.8292	−0.7610	0.4466

Note: Authors own calculation.

Table 11. GMM estimation result for ZRISK

	Public-sector banks		Private sector banks
Variables	CR	CAR	CR	CAR
ΔCR t –1	0.77***		0.47***
	(25.36)		(9.61)
ΔCAR t –1		0.51***		0.43***
		(7.49)		(6.69)
ΔZRISK	−0.12**	−0.61***	−0.06**	−0.12*
	(−2.57)	(−8.54)	(−2.71)	(−1.73)
SZ	0.17	0.24	0.41**	1.03**
	(0.51)	(0.53)	(3.62)	(2.14)
NIM	−0.15	−0.30*	0.26	1.41***
	(−1.22)	(−1.88)	(1.17)	(7.34)
LAR	−0.02*	−0.02*	0.01	−0.01
	(−1.76)	(−2.25)	(0.66)	(−0.85)
BL	0.01***	0.01	-−0.002	-−0.009
	(6.47)	(1.02)	(−0.20)	(−1.45)
RP	0.94	−4.58***	−0.04	−4.04**
	(1.30)	(−7.98)	(−0.09)	(−1.93)
Wald test	χ ^2(7) = 305.43	χ ^2(7) = 563.50	χ ^2(7) = 241.22	χ ^2(7) = 173.48
	(0.000)	(0.000)	(0.000)	(0.000)
Z2 test	1.94(0.15)	0.96(0.33)	1.17(0.21)	1.49(0.13)
Sargan test	χ^2(135) = 383.14	χ^2(135) = 402.78	χ^2(135) = 127.68	χ^2(135) = 145.72
	(0.23)	(0.13)	(0.24)	(0.24)
NOB	416	416	288	288

Notes: Authors own calculation. For GMM each variable is in its first difference form. ***, **, * show the 1, 5 and 10% level of significance, respectively. Figures in the bracket show the Z-statistics. Wald test is a test of joint significance of the estimated coefficients, which is asymptotically distributed as chi-square under the null of no relationship and Sargan test of over identifying restrictions, which is asymptotically distributed as chi-square under the null of instrumental validity.

Table 12. GMM estimation result in with and without crisis period

	Public-sector banks				Private-sector banks
	CR		CAR		CR		CAR
Variables	Without Crisis	With Crisis	Without Crisis	With Crisis	Without Crisis	With Crisis	Without Crisis	With Crisis
ΔCR t –1	0.78***	0.31**			0.43***	0.55***
	(23.43)	(1.93)			(5.78)	(4.02)
ΔCAR t –1			0.48***	0.56***			−0.94***	0.24**
			(6.35)	(3.39)			(5.53)	(2.95)
ΔZRISK	−0.32**	−0.62**	−0.48***	−0.56*	−0.02***	−0.14*	−0.22**	−0.53**
	(−2.39)	(−1.96)	(−4.63)	(−1.77)	(−2.56)	(−1.97)	(−2.72)	(−1.88)
SZ	0.01	−0.96**	2.42**	−4.56**	−0.45	−0.40***	−0.96	−1.89*
	(0.04)	(−2.96)	(2.64)	(−4.11)	(−1.75)	(−2.98)	(−1.01)	(−1.71)
NIM	−0.35	0.23**	0.08	0.82**	0.03	0.09*	1.68***	0.57
	(−1.38)	(2.44)	(0.26)	(2.57)	(0.40)	(1.71)	(6.17)	(1.32)
LAR	−0.02	0.01*	−0.062**	−0.009	0.01	−0.003	−0.01	−0.01
	(−1.30)	(1.76)	(−2.71)	(−0.20)	(1.56)	(−1.06)	(−0.47)	(−0.32)
BL	−0.03	0.002	−0.008	−0.04	−0.001	0.002	0.004	−0.02
	(−9.04)	(0.29)	(−0.89)	(−0.95)	(0.30)	(0.98)	(0.50)	(−1.02)
RP	0.93	−0.02	−4.67***	−1.46*	0.01	0.05	−5.36**	−1.65
	(1.56)	(−0.68)	(−6.96)	(−1.51)	(0.08)	(1.10)	(−2.58)	(−1.22)
Wald test	χ ^2(7) = 598.40	χ ^2(7) = 20.87	χ ^2(7) = 55.12	χ^2(7) = 163.01	χ^2(7) = 552.41	χ ^2(7) = 90.04	χ ^2(7) = 55.12	χ ^2(7) = 16.85
	(0.00)	(0.000)	(0.000)	(0.000)	(0.000)	(0.000)	(0.000)	(0.01)
Z2 test	1.58 (0.11)	1.27(0.20)	1.06(0.28)	0.14(0.17)	1.14(0.25)	1.06(0.28)	1.06(0.28)	1.44(0.65)
Sargan test	χ ^2(44) = 86.31	χ^2(14) = 52.78	χ^2(44) = 49.23	χ^2(14) = 17.64	χ^2(44) = 61.09	χ^2(14) = 41.36	χ^2(44) = 49.23	χ^2(14) = 14.91
	(0.20)	(0.19)	(0.27)	(0.23)	(0.14)	(0.12)	(0.27)	(0.38)
NOB	233	130	233	130	162	90	162	90

Notes: Authors own calculation. For GMM each variable is in its first difference form. ***, **, * show the 1, 5 and 10% level of significance, respectively. Figures in the bracket show the Z-statistics. Wald test is a test of joint significance of the estimated coefficients, which is asymptotically distributed as chi-square under the null of no relationship and Sargan test of over identifying restrictions, which is asymptotically distributed as chi-square under the null of instrumental validity.