Does Prudential Regulation Affect Risk Management? A Case Study of New Generation Private Banks in India

Abstract

Purpose: This study examines how Prudential Regulation affects New Generation Private banks'  Risk Management. Its goal is to add to the research by showing how banks' risk management and Prudential Regulation factors like CAR, ROA, Asset Quality and Firm Size are linked.

Research Methodology: Regression and panel data analysis was used to test the hypotheses and the proposed model using a sample of 7 private banks in India. The study uses data from financial institutions from 2011 to 2020. Prudential Regulation can be judged by CAR, ROA, Asset Quality and Firm Size. This number comes from the bank's estimate. Bank risk management is measured in terms of credit, market, and operational risks.

Findings: Findings suggest that Firm Size has a significant impact on credit and Operational risk but also an insignificant impact on Market risk. We also observed that CAR has an insignificant effect on credit, market, and operational risks. A similar observation was found for Asset Quality and ROA, which have an insignificant impact on the bank risks with different characteristics.

Originality/ Value: Banks may improve their ability to prevent losses, respond swiftly to crises, and maintain stability by implementing sound risk management and Prudential Regulation practices. This research examines corporate governance and risk management in Indian financial institutions. Specifically, market, operational, and credit risk are used to evaluate risk management.