Empirical Analysis of Basel Effects on the Interest Rate of Public and Private Banks : A Case Study of SBI and ICICI Bank

The purpose of this working paper is to analyze the effect of Basel norms on the interest rate structure of both public and private bank of Indian banking industry by taking the time series data of two leading banks i.e. State bank of India and Industrial Credit and Investment Corporation of India from 2000 to 2015.The study used both qualitative and quantitative approaches and to analyze the data linear regression model is used for interest rate structure. To study the effect on interest rate this paper includes independent variable based on CAMEL approach. The ratio which are taken into consideration are Capital adequacy ratio, Asset management (Net Asset to loan given), Managerial Efficiency (Total advances to total deposit), Earning Ratio (Net interest income to total fund), and Liquidity Ratio (Liquid Asset to deposit ratio. The result of regression model summary statistics for average interest rate on loans shows that interest rate of loan has a strong correlation with explanatory variables that we used in this model. Explanatory variable explains 78.8 percent (public bank SBI) and 83.3 percent (private bank ICICI) of dependent variable and this can be concluded that the model is proper and fit. The empirical result shows the independent variables have a significant effect on the interest rate of the Indian Banking Industry