SUBMITTED TO THE DEPARTMENT OF COMMERCE AT SNDT WOMEN’S UNIVERSITY
On
Capital Structure - Trends, Determinants & Issues in India with reference to banking sector: A case study of YES Bank.
BY
Shalini Shashidharan.
M.Com.
June 2013
Introduction – Background study
The theory of capital structure is an important reference theory in any enterprise’s financing policy. The capital structure includes mixture of debt and equity financing and finding an optimal capital structure is one of the most important and complex issues. The contribution of the banking sector in any economy is so immense that it attracts much attention from governmental regulatory authorities and international institutions. Most bank capital especially during start up come from combinations of various debt and equity proportion. This is obtained from shareholders to finance the company’s needs and balance their leverage which signifies a good standing of the bank. Debts can be acquired in the form of bonds and long term credit while equity can be acquired through the participation of stakeholders or common stocks and retained earnings.
The study is an attempt at examining the usage of the capital structure theories in practice as well as analyzing the determinants of capital structure size, risk-return trade-off, growth rate, earning rate, debt servicing capacity, & degree of leverage in the banking sector. It also tries to address issues that pose a challenge while planning the capital structure of the banks. The capital structure and the quantum of capital held by the bank indicate the ability to the function of credit creation, which is the prime activity of any Bank.
There are three major considerations, viz, risk, cost of capital and control of the existing shareholders, which help the finance manager in determining the proportion in which he can raise funds from various sources. This project