A Study On Corporate Capital Cost Dynamics In The Wake Of Systemic Banking Fragility
- IJLLR Journal
- Jun 22
- 1 min read
Siddhika Tiwari, Institute of Law, Nirma University
ABSTRACT
Financial instability in the banking sector can influence various aspects of corporate financing decisions including the cost of capital, risk premiums and the overall resilience of the economy. In 2024, Republic First Bank collapsed because of unrealized losses on securities, and its over-reliance on uninsured deposits, similar to the collapse of Silicon Valley Bank, in turn highlighted concern globally about economic financial stability going forward. India has also experienced some level of banking turmoil and crises at institutions like Yes Bank and Lakshmi Vilas Bank which dealt with liquidity shortages, constraints and regulatory pooling.
As interest rates rise, liquidity becomes tighter and rules surrounding lending by the Reserve Bank of India (RBI) have become more constrained to corporations. Meaning – that the implications for companies, and finding access to stable and affordable financing have compounded in nature. With banks becoming far more conservative regarding lending, risk premiums volatile, understanding how the cost of capital evolves is becoming vital for all businesses. This research paper will examine how banking stability and risk premiums affect a firm’s weighted average cost of capital (WACC) and corporation capital structure decisions. It draws on quantitative evaluation of legislative framework, judicial decisions, and global perspectives, to provide a roadmap by making useful inferences about- how financial losses may create a pathway to increasing their financial resilience, improving upper constraint to access capital, and develop overall corporate financing at a time of financial uncertainty.
Keywords: Cost of Capital, Banking Stability, Risk Premiums, Corporate Financing Strategies, RBI Regulations, Financial Resilience.
