Liability management in commercial banks in India: A comparative study of bank groups in Liberalized-Era

This paper examines the liability structure of 68 commercial banks operating in India for eight consecutive years, 1992–2000. The special emphasis is on the influence of ownership structure and size in this regard. Time series and cross-section analysis of the liability structure of sample banks reveals that they use 17 units of debt for each unit of owned funds, which is consistent with limits set by regulation. After recapitalization, nationalized banks appear closer to foreign banks in terms of leverage; the leverage of private banks is closer to the State Bank group. Although networth to total assets ratio is highest for small banks, relatively lower reserve to networth ratio for them suggests that their shareholders are more interested in regular dividend income. With the notable exception of the foreign banks, the share of deposits has increased for all bank groups in the second half of the study. The relative importance of various types of deposits seems to depend on the nature and scale of operations of the sample banks. Borrowings constitute a miniscule portion of total sources of funds for the sample banks.