IMPACT OF CAPITAL STRUCTURE ON LENDING EFFICIENCY OF PUBLIC SECTOR BANKS IN INDIA

Abstract

This study focused on understanding the impact of capital structure on the lending efficiency of selected public sector banks in India during the period 2015–16 to 2024–25. The Credit-Deposit Ratio (CDR) is considered to measure lending efficiency whereas Total Debt to Total Assets Ratio (TDTA) and the Capital to Risk-Weighted Assets Ratio (CRAR) are used to measure the capital structure. Secondary data collected was analysed using descriptive statistics, correlation analysis, and Random Effects panel regression. The findings of this study reveal that CRAR has a positive and significant impact on the Credit-Deposit Ratio, indicating that higher capital adequacy improves lending efficiency. However, TDTA has a negative but insignificant effect on lending efficiency. The study concludes that maintaining adequate regulatory capital is more important than increasing leverage to enhance the lending capacity of public sector banks.