Regulatory capital boosts lending and improves loan quality for Indian banks.
The study looked at how the amount of money banks have to keep in reserve affects their willingness to lend and the quality of those loans. They used data from 43 Indian banks over 20 years and found that when banks have more capital reserves, they tend to lend more but also have better quality loans. This suggests that banks are managing risks to follow regulations while still making profits. The type of risk measure used also affects the results.