This paper examines the manner in which Indian banks adjust their balance sheets to meet capital standards. The paper uses a partial adjustment framework with simultaneous equations to model bank behavior. The changes made by banks to capital ratios and risk levels are simultaneously analyzed. The study finds differences in the behavior of bank groups. It finds that public sector banks are likely to be more dependent on internal accruals than other bank groups. It also finds that banks with comparatively lower levels of capitalization are likely to lower capital ratios and increase risk levels. This is more so in case of private sector banks.