The Changing Role of Reserve Bank of India in Bank Supervision and

Corporate Governance with the Introduction of Risk Based Parameters

Sujoy Kumar Dhar
Faculty Member,
IBS Business School, Kolkata.
Abstract
The role of RBI has undergone through a rigorous change over the period of time.
Earlier, it was a common perception that the roles of RBI is confined to credit control
by changing different key policy rates depending on the economic environment of the
national as well as international level. In the recent past the global banking practices
faced a number of jugglery and malpractices such as window dressing, over and
undervaluation of mortgage and collateral, overpricing

the default risk and under

pricing the credit risk. Basel III is a recently developed area of the banking sector where
major impetus was provided towards the liquidity risk. The objective of the research
paper is to identify the changing role of RBI, interpret the changes which have taken
place with the implementation of Basel norms, analyze the role of the central banks as
controller of the liquidity of the nation, demonstrate the challenges of measuring,
mitigating and managing of different type of risks, develop the strategies to combat
against non performing assets and critically analyze the corporate governance
framework of the banks. The proposed research paper will incorporate the secondary
information available on Risk management in banking, scope and direction of the
successive Basel norms and corporate governance practice followed by Indian banks.

Electronic copy available at: http://ssrn.com/abstract=2600379

This paper will focus a paradigm shift in the role of RBI. It will provide a new dimension
in the literature of corporate governance, risk management in banking and ethical
obligations of the banks as well as successful implantation of International Basel Norms
on capital adequacy framework by issuance of relevant norms and guidelines.
Keywords
Risk Management, Corporate Governance, Basel Norm, Capital adequacy ratio.

Electronic copy available at: http://ssrn.com/abstract=2600379

1. Introduction
The Central Bank is the apex body of the money market of every nation. In India, central
bank is known as Reserve Bank of India (RBI), in Bangladesh, it is referred as
Bangladesh Bank, in USA it is called as Federal Bank, in Europe it is known as European
Central Bank. Irrespective of the name and the nation, previously the roles and
responsibilities of the central banks were confined to certain stereotype activities such as
controller of credit in the economy, lending the fund to the commercial banks as the
lender of the last resort, providing the loan and advances to the Government of the nation
in the form of deficit financing, controller of the foreign exchanges by devaluating and
revaluating the home currency to ensure that the value of the currency remains within a
particular predefined range as a policy resolution. In this respect, RBIs role in banking
supervision has changed significantly from 1992 which should be considered as
milestone year in the history of Indian banking sector.

2. Background Story
The great depression in USA during 1930 created a knee jerking effect in the global
economy. All on a sudden almost all the major banks in USA went for bankruptcy. The
top management of these banks siphoned their fund into European market and parked the
fund in Swiss banks. It was a bolt from the blue for all USA citizens who suddenly
realized in one fine morning that there was hardly any money in their bank accounts. As a
result, their purchasing power decreased to a significant extent and all the macro
economic variables such as income, employment, output and price started to move to the

downward direction in a vicious cycle. On the other hand, exorbitant amount of cash
piled up in different banks of Switzerland due to money laundering. Germany started to
borrow fund on a continuous basis from the banks of Switzerland to purchase the arms
which would be used in war. This was considered as sovereign debt of Germany. The
fascist leader Hitler financed the entire expense of World War II by borrowing the money
from Swiss banks. At the end of World War II, German economy crashed down and
Germany was unable to repay their debts which created an adverse impact on the
fundamental of all the banks which were operating in Switzerland as huge bad debt was
accumulated in their books of account. The Basel Committee of Banking Supervision
was formed in 1945 to create a framework which can save the economy of the member
nations. Initially the G-7 nations and oil rich nations were the members of this committee.
Basel committee met in 1945, 1954, 1961, 1966 and 1972. The sudden collapse of Soviet
Russia and emergence of BRIC nations compelled Basel committee to include India as a
member nation in 1984. Implementation of Basel accord took place in 1992 when waves
of privatization, liberalization and globalization entered in India.

3. Survey of Existing Literatures

Section 5(b) of the Banking Regulation Act, 1949 defines banking as accepting for the
purpose of lending or investment of deposits of money from the public, repayable on
demand or otherwise and withdraw- able by cheque, draft and order or otherwise. Two
basic functions of a bank are 1) acceptance of public deposits 2) lending or investment of
such deposits. Accepting deposits from public indicates that a banker can accept money

as deposit who offers it as such. Of course, a banker has the right to deny the acceptance
of deposit on the grounds of improper introduction and inadequate identification. During
the prime ministerial tenure of Mrs. Indira Gandhi, nationalization of Indian banks took
place in 1969 where fourteen banks were nationalized. In 1980, there was another wave
of nationalization of Indian banks where seven banks with deposit more than Rs 2000
crores became nationalized. Although the origin of central banking dates back to 1894,
the art of the central banking had incorporated new dimensions only during the 20th
century. Central banking is in fact essentially a 20th century phenomenon (Shekhar,
2010). The Central bank of a nation is provided the necessary autonomy, authority and
responsibility of issuing tender currency which facilitates to bring about uniformity in the
circulation of liquidity in the economy. In the year 1991-92, the Government of India
opened all the sectors including banking sector towards the private players as well as
foreign players apart from very few strategic sectors such as Indian Railway, Atomic
Energy. The Modern banking was going through numerous changes fostering increased
competition; hence the traditional inward focus had to become more market oriented. The
imperative is much more evident in transitional markets. Owing to the opening up these
markets to the external competition, transitional economies including India faced stiff
competition from the banks of developed countries (Kolar, 2006).

According to Dalvinder Singh, the responsibility of the bank supervisors is to keep a

close monitoring and improve corporate governance within the banking system. Bank
regulators place a formal responsibility on banks to protect the interest of number of legal

stakeholders such as depositors and regulators apart from central relationship between
shareholders and management (Singh, 2006). The four items which includes scope and
direction of bank, its capital adequacy ratio, level of exposure to the market risk and
degree of off balance sheet operations are mainly monitored by the central bank of each
nation. The system resiliency that is the ability to recover both internal and external
shocks whether cyclical or unexpected is function of the level of control maintained by
regulators (Maxwell, 1990).

4. Research gap
Several research papers have been authored on corporate governance in banking. (Perera,
2006; Sharma, 2008;Alexander, 2009;Lo, 2009). Numerous articles are also available in
the field of risk managment in banking ( Tschemernjak, 2004; Doff, 2008;Williams, 2010
; Jarrow, 2011). Mulitple research precedences are evident in the sphere of banking
supervision and monitoring (Isik, 2007; WU, 2008;Gersbach, 2009;Hussain, 2012) .
Hardly any work has been done on the changing role of RBI taking into account the
perspective of the risk management and risk based supervision.

5. Objectives of the Paper

To evaluate the risk management strategies followed by Indian banks and assess
the corporate governance framework of the banking sector player.

To focus on the role of the Central Bank in both pre and post liberalization phase
in India.

To demonstrate how the Basel accords has changed the supervisory role of the
RBI.

To analyze how RBI discharges its duties as the controller of the liquidity in the
changed circumstances.

6. Structures of banking Sector in India

Banks can be broadly categorized into two groups scheduled banks and
nonscheduled banks. Scheduled banks are of two types- Scheduled Commercial
banks and Scheduled Cooperative Banks. Scheduled commercial banks are
classified into four major heads- the Public Sector Undertaking banks, the Private
sector banks, the foreign banks and the Regional Rural Banks. The PSU banks are
mainly divided into two groups such as SBI and its Associates and other PSU
banks. The private sector banks are classified into old generation private sector
banks and new generation private sector banks. Scheduled Cooperative Banks are
mainly categorized into Scheduled Urban Cooperative Banks and Scheduled State
Cooperative Banks.

7. Corporate Governance in Banking

The sound corporate governance becomes a critical success factor in any company when
ownership deviates from control. Smt. Pratibha Patil, the former Honourable President of
India opined that Corporate Governance is about working ethically and finding a
balance between economic and social goals. It includes the ability to function profitably
while obeying laws, rules and regulations during the Lakshmipat Singhania-IIM
Lucknow National Leadership Awards ceremony 2007, at New Delhi, on 12th February,
2008. The corporate governance mechanism is much more crucial in banking sector. i The
international consensus in preserving the soundness

of the banking system has

highlighted the following as prime necessities such as effective risk management system,
adequate capital provision, sound supervision and regulation, transparency of operations,
conductive public policy intervention and maintenance of macroeconomic stability,
existence of appropriate oversight by senior management, independent and qualified
directors who are not subject to undue influence from management or outside concerns,
careful attention to the audit report prepared by the internal and external auditors as an
important control function ,establishment of strategic objectives and a set of corporate
values which are required to be communicated to the entire banking reorganization
(Bansal, 2005). Section 12 of the Prevention of the Money Laundering Act, 2002, casts
certain obligationsii on the banking companies with regard to preservation and reporting
of customer account information.

8. Supervisory role of the Central Banks

Trust in policymaking institutions is an essential aspect of good governance in
democracy. Institutional trust, which implies ones prediction that everybody can rely on
benevolent and competent policies of a given institution is important to a policy making
body because its legitimacy and policy efficacy depend on it. If the common perception
of the citizens of the nation is that an institution is not enough trustworthy, they may not
adhere to its policy decisions or they may act with the purpose of undermining the
authority of the institution. The credibility of the policy making body comes under a
question mark which is not at all a good signal to the all stakeholders of the society
(Kaltenthaler, 2010).
Over the past decade many countries have witnessed the changes in the architecture of
banking supervision. Often the institutional change was triggered by a banking crisis
which hurt the reputation of the supervisors. Sometimes after scanning the both global
and national environment, policymakers have to rethink due to structural change in the
financial industry which brought about mergers between banks, brokerage companies and
insurance players. The Glass Steagall Act in 1933 can be used as ready reference where a
bank cannot do simultaneously both commercial and investment banking. Once the Gram
Leach Belly Act repealed the Glass Steagall act in 1999, under the same roof, a bank can
offer commercial banking, investment banking as well as insurance and brokerage service
to its clients. In one way, Gramm leach Belly act was much more progressive and it
paved the way of financial reengineering which created several complicated high end
financial instruments, similarly it was one of the major responsible factor for the sub

crime crisis where simultaneously collateral debt securities and credit default swaps were
sold aggressively without thinking about the ultimate consequence of such herd
behaviour. Nevertheless it is an ongoing debate whether the supervisory structure should
be reformed and if so in what direction. It can be said without any ambiguity that a
flawless, efficient and effective supervisory model can be created if regulatory
independence, supervisory independence, institutional autonomy and budgetary
independence are free from the political interference and bureaucratic hassles
(Masciandaro, 2007).
In India; private banks are participating in para- banking activities by creating
subsidiaryiii. PSU banks are dealing with para-banking activities by creating separate
vertical divisioniv. Still Indian banking sector was perceived as

more or less

conservative by nature as it did not allow the banking company to do any other nonbanking business. Similarly players of any other sector except banking were not yet
provided the banking licenses by RBI. As a result the risk of money laundering as well as
fund siphoning could be reduced to a significant extent.

Earlier RBI used to follow the CAMEL modelv for supervising the banks. Apart from
CAMEL, offsite monitory and surveillance system, consolidated financial statement and
consolidated prudential report, revised long form audit report were used as the tools of
supervision by the RBI. A gradual slow but steady and silent shift took place from
CAMEL based supervision to risk based supervision. The basic purpose of risk based
supervision is to develop a risk profiling for each bank. A typical risk profile document as

10

mentioned by RBI incorporates CAMELs rating with trends, detail description of key
risk features captured under each CAMEL component, summary of key business risks,
SWOT analysis as well as sensitivity analysis (Yamanandra, 2003).The risk based
supervision provides major emphasis on risk where risk arises from the asset liability
mismatch in banking sector. A vital issue in the strategic bank planning is asset and
Liability Management (ALM).It is the assessment and management of financial,
operational,

business functions which are endogenous by nature and management as

well as mitigate different types of risks which are exogenous by nature. The objective of
ALM is to maximize returns through efficient fund allocation given an acceptable risk
structure. ALM is a multidimensional

process, requiring simultaneous interactions

among different perspectives. If the

simultaneous nature of ALM is discarded,

decreasing risk in one dimension may result in unexpected increases in other risks
(Tektas, 2009). The excessive off balance sheet exposure is another area of risk faced by
the banks.

9. New Banking Bill of India, 2012

The Parliament of India has approved the Banking Law bill on 18th December 2012
which could eventually see many of Indias largest business houses return to banking
sector from where they were compelled to exit after the ex-Prime Minister of India , Mrs
Indira Gandhi nationalized the banks. The bill has created the provision that voting right
in Private Banks will be confined to the shareholders who have the ownership of at least
26% and voting right in Public Sector Undertaking Banks will be restricted to the

11

shareholders who have the ownership of at least 10%. The minority shareholders can
exercise their franchise only by referendum where opinions of the shareholders are taken
either in favour or against of any motion. Apart from these, according to this new bill,
RBI will have the power to supersede the boards of the bank to inspect the books of
accounts of the associate companies of the bank and RBI will have the power to inspect
the books of other subsidiaries of the bank with the concerned regulator. The bill allowed
the State owned banks to raise capital through right issue and the Competitive
Commission of India (CCI) will regulate anti competitive practices and would also have
power to approve the corporate restructuring such as merger and acquisition (ETIG
Database). The RBI received 26 applications from different Government as well as private
business houses which includes the L&T Finance, the Tata Group, Reliance Capital, Aditya
Birla Nuvo, Bajaj Finserv, Videocon, IDFC, Muthoot Finance, India Bulls, Bandhan,
Bangalore based Janalakshmi Microfinance, Noida based little known Smart Global
Ventures, Gurgaon based advisory services firm INMACS Management, UAE Exchange of
India: a remittance and foreign exchange service firm, India Infoline, LIC Housing Finance,
Religare, Edelweiss, Magma Finance, SREI Infrastructure Finance Corporation, IFCI, The
Department of Post (Government of India), Tourism Finance Corporation of India,
Suryamani Financing(part of Kolkata based Pawan Kumar Ruia Group), JM Financial,
Shriram Finance etc. Only Bandhan and IDFC have received in principal banking license
from RBI.

12

10. Differential Banking License issued by RBI

RBI-constituted Nachiket Mor Committee for financial inclusion first mooted the idea of
having differentiated banks in the country. The panel's suggestions include specialized
payment banks, retail banks, wholesale banks, infrastructure banks etc. Recently, RBI
granted universal banking license to two applicants - Bandhan and IDFC -- and added
that some of the nearly two dozen aspirants were more suited for differentiated banking
license. The RBI kicked off the differentiated banking license regime to set up banks that
will carry the Governments financial inclusion agenda. RBI has proposed for two types
of banks such as small and payment banks. The two types of banks will have uniform
capital requirement of Rs100 crore but will differ in their activities. A payment bank will
be able to take deposits but could not lend. It has to invest all funds in Government
securities. Small bank is allowed to lend but with the restriction on the areas in which
they could operate and the banking services should be offered mainly to the farmers and
small entrepreneurs. These banks will have to mandatorily have half their loans with
ticket size less than Rs 25 lakh. The primary objective of setting up a payment bank is to
promote further financial inclusion by providing small saving account, payment,
remittance services to migrant labour workforce, low income household and small
business.
11. Emergence of Basel Frameworks and its importance
The major pillars of a bank comprises of liquidity, profitability and safety. In the era of
globalization, liberalization and privatization, any nation cannot prosper so long it
achieves sustainable increase in per capita income. The satisfactory growth rate can be

13

achieved only when the nation is able to generate adequate investment. The source of
investment is the adequate savings which usually come from both the household as well
as the corporate sector. The banking sector is the intermediary which can convert the
saving of the household and corporate into productive investment. Though the banks are
discharging several roles simultaneously, the major role played by the bank is credit
creation within the economy. Banks are creating loans and advances for the sake of their
business. By default, debtors are the asset for the bank. If a significant portion of the
debtors are converted to non performing loan, banks are unable to meet their liabilities
such as paying the interest to the deposit holders. Therefore the banks have to hedge their
risk by adopting appropriate risk management strategy. Unlike other banking liabilities,
capital can be used to absorb losses.
Minimum capital requirements set a basic level of resilience against losses and help to
protect a bank against insolvency. Internationally agreed minimum standards for capital
requirements have existed since the first Basel Accord of 1988, which is known as so
called Basel Ivi.
The objective was to create uniform risk management policy across the globe. Basel II
norms came afterwards and in Basel II, there were three main pillars. The three pillars
include minimum capital requirement, mandatory disclosure and close

supervision. The

criterion of the minimum capital requirement means if the banks credit rating is
extraordinarily good, it can maintain lesser amount of capital than the stipulated
benchmark. The banks are instructed to disclose mandatorily its risk management
strategies in depth on a continuous basis to all of its stakeholders in its quarterly, half

14

yearly and annual report which are available in the public domain. The Central banks of
each nation will have to perform the role of watchdog and closely supervise whether all
the banks are properly conforming to the norms of Basel II. The another significant
difference between the Basel I and Basel II is that Basel I was focusing only on credit
risk where Basel II emphasized on market risk and operations risk apart from the credit
risk. Market risk incorporate all the risks which are beyond the control of any individual
company or sector such as commodity and equity pricing risk, credit spreads, inflation
risk, interest rate risk, foreign exchange rate risk, risk from unforeseen contingencies
such as war, instability of the Government, external aggression and internal invasion as
well the natural calamities such as famine, flood, earthquake, tsunami etc. The concept of
Value at Risk (VAR) is used to measure the market risk. Operations risk includes
underperformance of the banks due to inefficiencies of the employees, inability to capture
and store the data, infrastructural inadequacy of the bank offices, money laundering,
Inadequate business continuity planning, improper succession planning /talent shortage,
faulty software used by the banks and server problem which creates a major area of
concern as it is an impediment in successful operation of the net banking as well as the
Core Banking Solution (CBS). Basel II provided the necessary guidelines to calculate the
expectedvii and unexpected lossviii incurred by a bank.

15

12. Performance Measurement of the Bank

RBI has to supervise the performance of different PSU banks, the old generation private
banks, the new generation private banks as well the foreign banks. There are multifaceted
approaches for the performance evaluation of the different banks, but hardly any
standardized approach is prevalent. The performance of a bank can be analyzed by the
four prolonged approach which is composed of growth, size, sustainability of operations
and risk management. Growth incorporates growth rate in demand deposit, growth rate in
loan and advances, growth rate in core fee income, growth rate in operating profit,
growth rate in total deposit and growth rate in net interest income. Size incorporates
volume and value of demand deposit, loans and advances, balance sheet size of the bank,
total number of branches operating, total number of ATMs as well as total number of
employees of the bank both in the national and international level. Sustainability of the
operation includes asset quality, productivity and efficiency of the bank. Asset quality
incorporates growth rate of Non Performing Asset (NPA), NPA provision coverage and
the ratio of net NPA to net advances. Productivity is measured by cost to average assets
ratio, operating profit per branch, operating profit per employee. Efficiency is judged by
cost to income ratio, ratio of operating profit to total income, return on average assets,
non interest income to total income, return on average net worth, net interest income to
average working funds, net interest income , the ratio of net interest income to total
average assets and cost of fund. Risk is measured by the capital adequacy ratio and the
ratio of Tier 1 capital to total shareholders capital (Roy, 2012). A new conceptual

16

dimension is identified to measure the risk of the bank which is known as Knock out
ratioix.
13. Subprime Crisis and Its Long Term Consequences
The entire globe had faced a financial catastrophe due to the subprime crisisx which took
place in USA in the year 2008-09. Both the rating agencies and the sophisticated
mathematical risk management models severely underestimated the risks associated with
such a strategy and the bonus culture and high leverage greatly encouraged the tendency
of excessive risk taking by rewarding chance based apparent success but not penalizing
the failure (Holland, 2010). Though neither any Indian company had subprime exposure
nor any Indian company went for liquidation, still Indian export which includes
agricultural product, cotton, textile, diamond and jewelry etc suffered a lot. Sensex went
down from 21000 points to 7500 points within a couple of months due to excessive
withdrawal of fund by Foreign Institutional Investors from the Indian stock market. The
bloodbath experienced by Indian stock market created liquidity crunch situation which
resulted adverse effect in different Indian companies such as layoff, salary cut and
recruitment freeze. If the root cause of this subprime crisis can be analyzed, it can be
concluded without any ambiguity that credit risk was overpriced and liquidity risk was
not taken into account with due considerations.

The liquidity problems commonly

happen because of failures in the management of funds or unfavorable economic

conditions which lead to unpredictable withdrawals by the depositors. Indeed,
maintaining a robust liquidity management is very challenging and difficult in the current

17

competitive and open economic system with strong external influences and

sensitive

market players (Ismal, 2010).

14. Emergence of Basel III
Basel III is a recent development in the area of banking sector where major impetus has
been provided towards the liquidity risk. The Macro Economic Assessment Group was
established in February, 2010 by the chairs of the financial stability board and Basel
Committee on Banking Supervision to coordinate an assessment of macro Economic
implications. Basel III emphasized on tier I capital. The important element of BASEL III
is an increase of the minimum common equity requirement from the current 2% level to
4.5%. According to the BASEL III norms, banks are required to hold an additional tier 1
capital of 1.5% and capital conversion buffer comprising 2.5% of common equity. The
countercyclical buffer would be as large as 0- 2.5% position of risk weighted assets. Tier
II capital should not be more than of 2%. Therefore for successful implementation of the
BASEL III, banks have to maintain at least 10.5% capital adequacy ratio. The successful
implementation of Basel III will provide a common platform or a common level playing
field for all banking players both in the national as well as international level in future.
Basel III does not take into account the tier III capital. Basel III focuses on the Liquidity
Coverage Ratio (LCR) and net stable funding ratio. LCR ratio aims to ensure that a bank
maintains an adequate level of high quality assets that can be converted into cash to meet
its liquidity needs for a thirty days time horizon under an acute liquidity stress scenario.
Net stable funding ratio is defined as available stable funding divided by required stable
funding. Basel III in Indian banks is yet to be implemented as it requires huge amount of

18

capital infusion. The Reserve Bank of India of India provided the instruction to Indian
banks to raise the minimum capital requirement to 5.5%. Hence all Indian banks are
required to maintain a minimum capital adequacy ratio of 11.5% to conform to the
statutory guidelines of RBI with respect to Basel III accords.
15. Risk Management in Indian Banking Sector
A significant number of players of Indian banking sector still remain under the control
of the Government (PSU banks) despite the strong wave of globalization, liberalization
and privatization and entrance of private and foreign banks in the arena. The major
shareholding of the public sector undertaking banks is lying with the Government. The
reasons for such ownership may include solving the severe informational problems
inherent in developing financial systems, aiding the development process or supporting
the vested interests and distributional cartels. The Basel Committee has underscored the
need for the banks to establish the strategies and to become accountable for executing as
well as implementing them (Dhar, 2010). NPA accumulation is the major characteristics
of PSU banks due to political intervention and lack of aggressive profit motive. Though
majority of the Indian banks both private and public sector undertaking banks are
maintaining much higher capital adequacy ratio than the global prescribed benchmark of
Basel I and Basel II norms, emphasis was provided on capital infusion to the PSU banks
in the Union budget for the financial year 2010-11, 2011-12 and 2012-13,2013-14 , 201415as well as for 2015-16. In a recent study of corporate governance in banking, a panel of
the Basel Committee on Banking Supervision reiterated the conventional view that the
board of directors are essential elements of "checks and balances" in the "organizational

19

structure of any bank". The panel listed oversight by the board of directors as one of the
four important forms of oversight, together with "direct line supervision", the role of
professionals detached from the day-to-day operations, and "independent risk
management, compliance and audit functions".
A similar assumption underlies the exchange rules requiring predominantly independent
boards issued in 2003. Yet, there is little evidence that the directors of major banks acted
to mitigate the excessive risks leading to the 2008 financial crisis, or even assumed
responsibility for bank losses (Murphy, 2011). Although the mechanisms of deposit
insurance and lender of last resort have been quite helpful in preventing a deepening of
the financial crisis during 2008-09, prudential supervision, capital requirement and the
adequate mechanism for orderly bail-out did fail. The prudential supervision failed to
identify the high levels of risk and the sources of relevant risks (liquidity risk). The
capital requirements were based on incorrect risk measurement models that failed to take
into account the risks associated with partial securitization, over the counter operations
and the use of mark-to-market accounting rules without adequate provisioning. Finally,
the bail-out or liquidation decision was the inefficient result of a lengthy bargaining
process with the banks stakeholders. The inadequacy of the safety net was clear once the
pro cyclicality of capital regulation (whether Basel I or II) was established with its
consequences; the fact that banks were led to liquidate their assets at a lower price. In
addition, the transfer of banking risks to the non-banking financial industry, thus creating
a so-called shadow banking system has led to a situation where banking risk has
escaped the regulatory authorities. Finally, the market discipline enthroned in the Basel II

20

third pillar, as a key principle, did not produce the expected results (Freixas, 2010). The
board composition refers to the distinction between inside and outside directors and the
percentage of outside directors on the board. Although the inside and outside directors
have their respective merits and demerits, most researchers favour outside dominated
boards. Outside directors provide superior performance benefits to the firm as a result of
their independence from firms management. They can bring to the board a wealth of
knowledge and experience, which the companys own management may not possess and
they can increase the element of independence and objectivity in boards strategic
decision-making.
16.

Credit Control as well as Sterilization Policies of the Central Banks

The Central bank has the supreme authority to decide about the monetary policy of a
nation. The liquidity control mechanism followed by the RBI consists of both
quantitativexi and qualitativexii policy.

RBI plays the crucial role of sterilization

mechanism. In the era of globalization, India is following flexible exchange rate policy
where the exchange rate is market determined but the government reserves the provision
to intervene in extreme cases. It is known as dirty float mechanism. When there is an
excess inflow of the foreign fund in the economy as Foreign Institutional Investors (FIIs)
are penetrating into Indian Market in order to enjoy the interest rate arbitrage, as an
immediate effect, there will be an appreciation of the home currency. If the home
currency appreciates beyond a certain level due to continuous buying pressure, exporting
sectors are likely to suffer a huge jolt. RBI usually intervenes in the process by buying
the dollar and selling rupee. Technically it is nothing but injection of the liquidity in the

21

body of the economy by RBI to stop further appreciation of home currency. To hedge the
risk of inflation, RBI issues the Government securities such as treasury bills which are
known as Market Stabilization Schemes. These T bills are held to maturity in nature as
they are not traded in the secondary market. These bills are issued to take away the
excess liquidity from the economy. On the other hand, once there is doom and gloom
situation in the economy, FIIs are pulling out their funds from the domestic market. Due
to excessive selling pressure, home currency depreciates with respect to foreign currency
which creates a devastating effect in the importing sector. If the foreign currency
depreciates beyond a certain level, current account deficit of the nation will be wider.
Under these circumstances, RBI comes as rescuer by selling the dollar and buying the
rupee. This process is known as absorption of the liquidity from the economy. The
injection and absorption of the liquidity to the economy by RBI is known as sterilization
process which actually immunes the nation against the volatility of exchange rate

to a

significant extent.
17. Pros and Cons of Expansionary Monetary Policy
Expansionary fiscal policy alone cannot enable to grow the economy up to the desired
level. Only the fiscal stimulus is unable to appropriate the entire growth potentiality of
the nation to the extent of the Simple Keynesian Macro Economic Multiplier xiii.
This is known as crowding effect xiv. Simultaneously expansionary Fiscal Monetary
Policy mixxv can overcome the crowding out effect and economy will be able to achieve
the desired benefit as per the simple Keynesian Macro Economic model. Risk of inflation

22

is prevalent when the Government is exercising the pump priming mechanism. In a

developing nation like India, a mild controllable dose of inflation should be injected in
the body of economy. Despite all the evils, inflation has one blessings, it enhances the
aggregate demand. The phenomenon can be properly described by the Philips curve.
Short run Philips curve shows inverse relationship between inflation rate and
unemployment rate. If inflation rate goes up, unemployment rate has to go down and
aggregate demand is stimulated. In order to enjoy the blessings of inflation, the nation has
to ensure that infrastructural facility is adequately supportive for industrialization. The
basic infrastructure includes communication and transportation system such as road
transport, transportation by railway, sea route and air as well as adequate power
generation. In the absence of basic infrastructural facility, economy will have to bear only
the worst effect of inflation. Under this circumstance, the commonly used jargon is
stagflation where higher rate of inflation is accompanied by stagnation in growth rate.
After the European nations went for sovereign crisis and the announcement of Fiscal cliff
by the USA President Barrack Obama, there is an extraordinary pressure on the RBI for
interest rate cut from the corporate lobby. It is really difficult to meet both the end still
RBI has to take the appropriate decision by striking a balance between growth potential
of the nation and the inflation rate. In an emerging economy like India with 29 States and
7 Union Territories, Wholesale Price Indexxvi (WPI) number is used as the standardized
measure of inflation though often it does not provide the fair picture. Often it has been
seen that Cost of Living Index (CLI) or Consumer Price Index (CPI)xvii number is quite
high though WPI is low in comparison to that. In 2013, the consumer price index

23

replaced the Wholesale Price index (WPI) as a main measure of inflation. In India, the
most important category in the consumer price index is Food and beverages (45.86
percent of total weight). Housing accounts for 10 percent; Transport and communication
for 8.6 percent; Fuel and light for 6.84 percent; Clothing and footwear for 6.5 percent;
Medical care for 5.9 percent and education for 4.5 percent. After the deregulation of the
price of petrol, diesel and withdrawal of subsidy from LPG, the inflation rate is expected
to increase in upward vicious circle. Under this circumstance, RBI preferred to opt for
wait and see strategy rather than taking a hasty decision of immediate rate cut.
18. The Dilemma faced by RBI
The stakeholders of Indian economy had experienced a tug of war between the Ministry
of Finance, Government of India and the Governor of Reserve Bank of India over interest
rate cut for last couple of years. India is the largest democratic nation in the world which
has universal adult franchise. Since elections are not state funded in India, in almost all
the cases the major political parties are funding the election expense through the donation
received from corporate houses. Hence in majority of the cases, corporate looks it as part
of their investment and they are willing to appropriate their return on investment during
the tenure of elected Government. Hence Ministry of Finance, Government of India is
always in favour of interest rate cut to encourage the productive investment which
indirectly supports the vested interest of corporate houses as cost of borrowing of fund
goes down. Simultaneously Government wants to create feel good factor by scoring a
brownie point in terms of GDP growth rate figure.

24

Though the Reserve Bank of India is considered as arm of the Government of India but it
has earned its credentials from its autonomous mode of operation. The RBI was
conservative and sensitive enough regarding its major key policy rates as controlling the
inflation was its main motto. WPI inflation rate in October 2014 reduced to 1.7% due to
favorable monsoon and fall in oil price. CPI Inflation rate as went down to 4.12% and
5.86% in November and December 2014 on yearly basis. CPI inflation rate came down
to zero percent for September, October, November and December 2014 on monthly basis.
Apart from the internal situation, a global economic unrest has been experienced during
that time period. Despite the Russian Central banks extraordinary move to defend the
currency, the rubles value continued to depreciate on 16th December, 2014. Russias
central bank raised interest rates from 10.5 to 17% at an emergency meeting in an attempt
for immediate damage control but unable to manage the show. Russia derives half of the
budget revenues from oil and gas. More supply of oil from the United States and less
demand from Europe, China and Japan resulted a sharp decline in global crude oil prices
and the same has retarded the countrys financial prospect. Cheaper oil means Russian
companies had fewer dollars to convert into rubles for which aggregate demand for
rubles went down to a significant extent. From the perspective of Russian Economy,
lower interest rate was desirable as same would push up growth rate but Russian
companies desperately looking for higher interest rates to increase the value of ruble and
make all the dollars they borrowed less expensive as the same would facilitate them to
repay their loan. Due to weak ruble, dollar became stronger with respect to rupee for
which Indian home currency started to deprecate with respect to dollar and the same

25

became a major challenge for Indian economy. Indian capital market adversely affected
due to Russian crisis as profitability of FII went down due to weak rupee.
Hence RBI reduced bank ratexviii, REPO ratexix, Reverse REPO ratexx, Marginal Standing
Facility ratexxi by 25 basis points on 15th January 2015 to combat against recessionary
trend. Bank rate, Repo rate, Reverse REPO rate and

Marginal Standing Facility rate

reduced to 8.75%, 7.75%, 6.75% and 8.75% respectively on 15th January 2015. RBI
reduced SLR by 50 basis points with effect from 7 th February, 2015. SLR became 21.5%
from 7th February, 2015 onwards. RBI went for second time cut in Repo rate, Reverse
REPO rate, bank rate and

Marginal Standing Facility rate in March, 2015. The Bank

rate, Repo rate, Reverse REPO rate and

Marginal Standing Facility reduced to 8.5%,

7.5%, 6.5% and 8.5% respectively as on 4th March, 2015.

19.

The scope and direction of RBI as per the Union Budget 2015-16

The Union budget for the financial year 2015-16 presented by the honorable Finance
Minister Mr. Arun Jaitly introduced a new dimension with respect to the role and
responsibilities of RBI. According to this, Ministry of Finance, Government of India was
proposed to enter into Monetary Policy Framework Agreement with RBI where the
apex body of money market would be responsible to ensure that inflation could not go up
above 6%. Critiques are saying by stipulating a quantitative target, actually Government
is trying to indirectly encroach

into the autonomy of RBI. According to them, by

pegging inflation to a particular rate, Government of India has created precedence.

Economists are claiming that the Government of India is moving towards inflation
targeting. Inflation targeting is a policy where a central Bank has mandate to concentrate

26

on one overriding objective for monetary policy achieving an explicit inflation target.
The target can prescribe a certain level for inflation or a range of acceptable values.
(Warnock, 2006)
20. Conclusion
It is a universal saying that change is the only constant in every sphere of life. Same is
applicable for RBI also. Majority of the Indian banks have more or less successfully
implemented Basel II norms. One of the pillars of Basel II is emphasizing on minimum
capital requirement which implies if the credit rating of bank is outstanding, they can
maintain lesser capital than the stipulated norms. Earlier credit ratings of the banks are
being done by the external credit rating agencies such as CRISIL, ICRA etc. According
to the modern IRB based approach, banks are asked to develop its own internal credit
rating system. Few Indian banks have already developed their own internal credit rating
framework such as SBI, ICICI bank and HDFC bank. But the majority of Indian banks
are striving to implement this IRB approach. More over Indian banks are passing through
a critical phase as this is the conversion phase from

Basel II to Basel III. The

implementation of Basel III requires huge amount of capital. Simultaneously maintaining

an extraordinarily higher capital adequacy ratio is also not the proper solution. Nobody
can deny the fact that maintenance of certain amount of capital adequacy ratio is required
as it hedges the risk against liquidity crisis. Similarly it is equally true that an extremely
high capital adequacy ratio reduces the credit creating capacity of the bank which creates
an adverse impact on the profit margin. Another tendency has been observed that in

27

order to clean their balance sheets, banks are transferring their non performing asset to its
Corporate Debt Restructuring (CDR) cell and CDRs are restructuring the loan by
lowering the interest rate and enhancing the loan repayment schedule without addressing
the fundamental problems. Therefore the RBI is expected to simultaneously discharge
various roles such as role of supervisor, monitor, liquidity controller as well as policy
maker in such a way so that maximum benefit can be provided to all stakeholders of the
nation.

28

Endnotes

If a bank goes for bankruptcy, apart from the shareholders and employees of the bank, the depositors of the
bank who have deposited their hard earned money will become financially insolvent.
ii

Each bank has to furnish information of transactions to the director of the Financial Intelligence Unit of
India within the prescribed time, where the Principal Officer has reasons to believe that a transaction or a
series of transactions are integrally connected so as to prohibit the provisions of this section. The
information should contain the nature of transaction, the amount of transaction and the currency in which it
was denominated , the date on which the transaction was conducted and the parties to the transaction. The
Cash Transaction Report (CTR) should be submitted on a fortnight basis by branches to their circle offices.
For the first fortnight ending 15th of the month the report shall be sent before 20th and for the second
fortnight the report is to be sent before 5th of the next month. Individual transaction below Rs 50000 may
not be included. The Suspicious Transaction Report (STR) should be submitted on a fortnight basis by
branches and circle offices where any transaction whether cash or non cash or a series of transactions
integrally connected is of suspicious nature. The branch manager should record his or her reasons in the
register for treating any transaction or a series of transactions as suspicious. The Counterparty Currency
Report shall be submitted as and when any transaction related to deposit of counterfeit currency notes or
defrauding the bank by forged high value securities etc take place (Fernando, 2012)
iii

For instance, ICICI bank is doing the core banking activities where its subsidiary ICICI Direct is dealing
with the brokerage business and its other subsidiaries such as ICICI Prudential and ICICI Lombard are
offering insurance services. Kotak Mahindra Bank is offering core banking services, its subsidiary Kotak
Mahindra Asset Management Company is selling the mutual fund, Kotak securities is providing the
brokerage service. On the other hand HDFC is a holding company which is NBFC and providing finance
for housing development purpose. It is offering banking services by its subsidiary HDFC bank; it is dealing
the mutual fund by its subsidiary HDFC Asset Management Company, it is offering insurance service by its
subsidiaries HDFC Standard Life Insurance Limited and HDFC Ergo General Insurance Company Limited.
iv

The State bank of India is offering core banking activities, SBI Mutual fund is dealing with the business
of asset management company, SBI life is playing in Life insurance market.
V

According to this approach, emphasis was provided to the few parameters such as capital, asset quality of
the bank, management quality, earning quality or net interest margin of the bank, liquidity position of the
bank as well as sensitivity of the banks toward the market risk.
VI

According to Basel I, it was decided that banks have to maintain at least 8% capital adequacy ratio to
hedge against the credit risk. The capital adequacy ratio is interpreted as (tier I capital + tier II capital) / risk
weighted assets. Tier I capital includes equity capital as well as reserve and surplus. Tier II capital
composes of revaluation reserve, hybrid instruments, general provisions, subordinated debts etc. Though
Basel I sets the criteria of maintaining 8% capital adequacy ratio, RBI instructed all Indian banks to
maintain at least 9% capital adequacy ratio. Under Basel I, capital requirements for credit risk exposures
are set purely on the basis of the type of portfolio: a fixed risk-weight is applied to each type of exposure,
and banks are required to maintain a ratio of capital, after deductions, to total risk-weighted assets of 8%. A
portfolio of qualifying sovereign exposures attracts a risk-weight of 0%, exposures to banks, qualifying
non-bank financial institutions are allotted a risk-weight of 20%, the retail mortgage portfolio is attached a
weight of 50%, and corporate as well as unsecured retail portfolios are assigned (such as credit cards) a
weight of 100% (Benford, 2007).

29

vii

Different financial jargons are used for computational purpose of the quantum of loss a bank can incur.
Some of the key terminologies are Probability of Default, Loss given Default, Exposure at Default. The
Probability of Default (PD) is the likelihood of a borrower defaulting on a contractual obligation. To
calculate the PD, the time horizon must be long enough to be meaningful and short enough to be feasible
given the data available. Several sequential steps are to be followed such as establishing the time horizon,
determining the measurement approach using the quantitative data such as financial statements, ratios as
well as qualitative information such as borrowers reputation, equity prices, critically reviewing the
available information, analyzing the published default studies/ secondary data as well as successful use and
implementation of transition matrices to look at the way PDs change over time. Loss Given Default (LGD)
is the estimated percentage of loss which bank has to incur if default takes place and this loss cannot be
recovered. The relationship between LGD and recovery rate are stated as LGD = 1- Recovery rate. Usually
the collaterals reduce the risk of an exposure and hence collateralized loans carry lower risk weights than
un-collateralized loans. The idle cash or deposit, gold, securities by sovereigns & public sector entities
carrying a minimum rate of BB-, banks and corporate securities are rated minimum at BBB-, equities listed
in major stock indices such as Dow Jones, Nikkei, Sensex etc are considered as eligible collaterals.
However the value of the collateral C is adjusted by applying so called Hair Cut (H). The equation can be
written as CA= C/( 1+H) Where CA= Collateral Adjusted. The value of H will depend on the value of
collateral. It varies from 0% (cash), 4% (sovereign securities), 15% (gold) and 30% (eligible corporate
securities). Exposure at Default (EAD) is the maximum amount that a bank can lose in the event of a
default. Expected loss is the amount that a bank can expect to lose on average in the event of a default.
Expected loss is the product of probability of default, loss given default, exposure at default. In the form of
equation, it can be written as EL= PD x LGD x EAD.
viii

Unexpected loss/ unanticipated loss are computed by subtracting expected loss from actual loss. UL=
Actual loss Expected loss.
ix

The knock out ratio is computed by the ratio of gross NPA to Tier 1 capital of the bank. A bank with high
knockout ratio indicates banks credit appraisal procedure is faulty for which non performing loans are
accumulated.
x

The origin of the crisis was some unscrupulous financial intermediaries who lend the fund to some nonqualified borrowers at a rate which was higher than the prime rate. Then the intermediaries created a pool
of mortgage based loan and they sold the mortgage based assets to a low risk entity entitled Special
Purpose Vehicle which was administered by a trustee. Thereafter the intermediaries converted the
mortgaged based asset into collateral debt obligation which was sold to the different banks and financial
institutions. When the real estate bubble busted, the banks and financial institutions went to croak the
properties of the subprime debtors who failed to repay their loan. The price of the real estate properties
went down to a significant extent due to abnormal selling pressure. The several Western financial
institutions including Merrill Lynch, Lehman Brothers, AIG, and Goldman Sachs were suffering from
liquidity crisis.
xi

Usually the quantitative controls are alternatively termed as direct control which is equally applicable to
the all sectors. The instruments of the quantitative control includes Bank Rate, Open Market Operations
(OMO), Cash Reserve Ratio (CRR), Statutory Liquidity Ratio (SLR), Repurchase Offer (REPO) and
Reverse Repurchase Offer(Reverse REPO). When the purchasing power of the citizen of the nation is
suffering from high inflation, the RBI will raise Bank Rate, CRR, SLR, Repo and Reverse Repo rate to
reduce the credit creating capacity of the commercial banks. Simultaneously the RBI will prefer to sell their
securities to the commercial bank so that excess liquidity of the bank can be reduced which will
automatically curb the lending power of the banks. When the Government of India smells the rat of
recession, RBI reduces the bank rate, CRR, SLR, repo and reverse repo rate to boost the credit creating
ability of the banks. Similarly RBI prefers to buy the securities from commercial banks to enhance the
liquidity position of the commercial banks.

30

xii

The qualitative control or indirect control implies selective control as it is not applied to all the sectors.
Selective control includes regulation of margin requirement, moral suasion and regulations of consumer
credit. If the inflation rate is quite high, RBI will raise the margin requirement which will automatically
reduce the lending power of the bank. Similarly RBI will make an appeal to all the commercial banks not to
accept those collaterals which were accepted earlier. Enhancing the standard of collaterals, by default RBI
will be able to reduce the circulation of money within the economy. Another stringent action RBI can take
by reducing the loan ceiling for each listed items and decreasing the number of installments within which
debtors have to repay the entire loan. On the contrary, in the anticipation of recession, depression or
liquidity crunch in the coming future, RBI reduces the margin requirement, increases the credit ceiling as
well as make a moral appeal to the commercial banks to accept comparatively inferior quality collateral just
to ensure enough liquidity flow in the economy.
xiii

John Maynard Keynes was a British Economist, who created a revolution in the literature of Macro
Economics. He challenged the basic proposition of the classical school of thoughts that full employment is
automatically achievable. Keynes established that full employment cannot be ensured as workers suffer
from the money illusion and the wage has strong downward rigidity. His ideas are the basis for the school
of thought known as Keynesian economics and its various offshoots.
xiv

If the Government is increasing its expenditure on goods and services, national income should grow in
the proportion of the Simple Keynesian Government Expenditure multiplier value. Once income increases,
transaction demand for money also increases. If the aggregate supply for money remains constant,
aggregate demand for money has to remain unaltered to ensure money market equilibrium. If transaction
demand for money goes up, speculative demand for money has to go down. As a result, interest rate will go
up which will have contraction effect on private investment. Therefore income will go down which is
termed as crowding out effect.
xv

The Expansionary monetary policy can provide new dimension of the growth in the economy if the
Government uses the increased money supply in financing the employment generation project such as road
and building construction projects. This will automatically increases the employment of nation. As the
purchasing power of the common mass goes up due to productive employment generation, aggregate
consumption demand goes up. If the aggregate supply remains unaltered, price will go up due to excess
demand or scarcity factor. Since price goes up to a significant extent, producer will be motivated to produce
and supply more and more to book the maximum profit. In order to produce higher amount of output, they
require more factors of productions which will increase employment opportunity further. Therefore, all the
macro economic variables such as employment, income, output and price will go up. This is known as
pump priming effect which implies growth rate can be enhanced by pumping more liquidity in the
economy
xvi

Wholesale price inflation (WPI) witnessed around 6% in 2013-14 which was above the comfort zone.

xvii

The CPI inflation for the financial year 2013-14 is 9.7%. This high rate of inflation reduces the
purchasing power of the middle class population to a significant extent.
xviii

The commercial banks can borrow from RBI either using Government securities as collateral or by
discounting their bills. The rate at which the bills of commercial banks are rediscounted by RBI is known as
Bank rate.
xix

The commercial banks can borrow from RBI by selling their securities with an agreement to repurchase
it at a higher price after certain period of time. The rate commercial banks have to pay to RBI is known as
REPO rate.

31

xx

When RBI borrows the fund from commercial banks, the rate RBI pays to commercial bank is known as
Reverse REPO rate.
xxi

The commercial banks overnight borrowing rate from RBI is known as Marginal Standing Facility rate.

32

21.

Bibliography

[1]Alexander, Kern. (2009). 'Bank Resolution Regimes : Balancing Prudential Regulation and Shareholder
Rights' . Journal of Corporate Law Studies , 61-93.
[2]Bansal, C. (2005). 'Corporate Governance in the Financial Organisation' . In C. Bansal, Corporate
Governance : Law Practice and Procedures with Case Studies (pp. 512-543). New Delhi : Taxmann Allied
Services (P) Limited .
[3] Benford, James and Erlend Neir (2007). 'Monitoring Cyclicality of Basel II Capital Requirements' .
Financial Stability Paper , 3-12
[4]Chowdhury, Anis. (2002). ' Politics, Society and Financial Sector Reform in Bangladesh'. International
Journal of Social Economies , 29 (12), 964-988.
[5]Dhar, Sujoy Kumar. (2009). ' Corporate Social Responsibility : A Burning Global Issue - Its Scope and
Direction '. Prism India , 6 (5), 9-18.
[6]Dhar, Sujoy Kumar. (2010). " Performance of the Banking Sector in India and Its Corporate Governance
Mechanism". Prism India , 7 (1), 25-28.
[7]Dhar, Sujoy Kumar. (2011). 'Basel III- A New Dimension in Banking Sector'. Prism India , 8 (3),11-14.
[8]Dhar, Sujoy Kumar. (2009). 'Issues & Challenges Of Corporate Governance In Global Meltdown
Scenario'. Icfai Reader ( A Special Issue on Corporate Governance ) , 21-25.
[9]Doff, Rene. (2008). ' Defining and Measuring Business Risk in an Economic - Capital Framework '. The
Journal of Risk Finance , 9 (4), 317-333.
[10]Fernando, A. (2012). Ethical Issues in Financial Management. In A. Fernando, Business Ethics and
Corporate Governance (2 ed., pp. 178-197). New Delhi: Pearson.

33

[11] Freixas, Xavier. (2010). 'Post-Crisis Challenges to Bank Regulation'. Banking Regulation , 377-399.
[12] Gersbach, Hans. and Bernherd Pachil. (2009). 'Flexible Majority Rules for Central Banks '. Journal
Money, Credit and Banking , 41, 507-516.
[13]Holland, John. (2010). 'Bank's Knowlwedge and Crisis: a Case of Knowledge and Learning Failure'.
Journal of Financial Regulation and Compliance , 18 (2), 87-105.
[14]Hussain, Hameeda Abu and Jasim AI-Ajmi (2012). 'Risk Management Practices of Conventional and
Islamic Banks in Bahrain '. The Journal of Risk Finance , 13 (3), 215-239.
[15]Isik, Ishan. (2007). ' Bank Ownership and Productivity Developments : Evidence from Turkey'. Studies
in Economics and Finance , 24 (2), 115-139.
[16]Ismal, Rifki. (2010). 'Strengthening and Improving the Liquidity Management in Islamic Banking'.
Humanomics , 26 (1), 18-35.
[17]Jarrow, Robert. A. (2011). ' Risk Management Models : Constructions, Testing, Usage' . The Journal of
Derivatives , 89-98.
[18] Kaltenthaler, Karl, Christopher J Anderson and William J Miller. (2010). ' Accountability and
Independent Central Banks : Europeans and Distrust of the European Central Banks'. Journal of Common
Market Studies , 48 (5), 1261-1281.
[19] Kolar, Tomaz. (2006). " Benchmarking Market Orientation of Banks in Transitional Markets :
Exploring a Modified Approach '. International Journal of Bank Marketing , 24 (2), 76-97.
[20] Lo, Wai- Chuang and Michael C.M.Ng (2009). 'Banking Reform and Corporate Governance '. The
Chinese Economy , 42 (5), 21-39.
[21] Masciandaro, Donato, Maria J Nieto and Henriette Prast (2007). ' Who Pays for Banking Supervision?
Principles and Trends '. Journal of Financial Regulation and Compaiance , 15 (3), 303-326.

34

[22] Maxwell, Charles . E and Lawrence J Gitman . (1990). 'Capital Adequacy and Asset Securitisation :
An Assesment of the World's Central Banks'. The International Trade Journal , 5 (2), 183-215.
[23]Murphy, Michale . E. (2011). 'Assuring Responsible Risk Management in Banking'. DELAWARE
JOURNAL OF CORPORATE LAW , 36, 121-164.
[24] Perera, Shirmal, Michale Skully and J Wickramanayake . (2006). 'Competition and structure of South
Asian Banking : A Revenue Behaviour Approach '. Applied Financial Economics , 16, 789-801.
[25] Roy, Robin, Sanjoy Mazumdar and Sameer Sukla . (2012, December). Zeroing In On The Winners.
Business World , pp. 76-77.
[26] Sharma, Anurag. (2008). 'Incomplete Reform or Opportunity : the Role of the Banking Sector in the
Credit Transmission Mechanism in India '. Journal Economic Policy reform , 11 (4), 273-288.
[27]Shekhar, K. C and Lekshmy Shekhar. (2010). Central Banking . In K. C. Shekhar, Banking Theroy and
Practice (pp. 35-65). New Delhi : Vikas Publishing house PVT LTD.
[28] Singh, Dalvinder. (2006). 'Corporate Governance and the Interest of the Depositors '. Journal of
Banking Regulation , 189-190.
[29] Tektas, Arzu.E, Nur Ozkan- Gunay and Gokhan Gunay . (2009). 'Asset and Liability Management in
Financial Crisis'. The Journal of Risk Finance , 6 (2), 135-149.
[30]Tschemernjak, Richard. (2004). 'Assesing the Regulatory Impact : Credit Risk - Going Beyond Basel
II'. Balance Sheet , 12 (4), 37-41.

[31] Warnock, Frank. (2006). 'Inflation Targeting' . Global Economies and Markets .University of Verginia
Darden Business Publishing .

[32] Williams, Barry and Laurie Prather.(2010). 'Bank Risk and Return : the Impact of Bank on Non
Interest Income '. International Journal of Managerial Finance , 6 (3), 220-244.

35

[33]WU, Zhang . (2008). 'A Control Chart for Monitoring Process Mean Based on Attribute Inspection'.
International Journal of Production and Research , 46 (15), 4341-4347.
[34]Yamanandra, Srinivas. (2003). 'Risk Based Banking Supervision '. In S. Yamanandra, Book of
Readings (pp. 81-84). Icfai University Press .

36

37