Impact of financial risk management on capital adequacy and profitability-A panel study of selected indian commercial banks

Risk management can be defined as the practice of systematically selecting cost effective approaches for minimizing the effect of threat realization to the organization. Risks have both positive and negative aspects. More risks carry higher returns. Banks usually raise finances through collecting deposits and on the one hand and providing loans. Therefore, the crucial assets of banks are loans and bonds while major liabilities are customer deposits. According to Cornett and Saunders, balance sheet of a bank has loans representing the bulk amount of a bank's assets although these loans always bear a risk. Where the bank makes bad debts to customers, the bank will be in serious problems. If the commercial banks do not manage their risks efficiently, they will likely fail to meet their social and financial objectives. Hence a study regarding the impact of financial risk management on profitability and capital adequacy of selected commercial banks has been conducted by taking the data of twelve selected Indian commercial banks between 2003 and 2013.