Power system stability is classified into frequency, rotor angle and voltage stability. This paper focuses on voltage stability, which refers to the ability of a power system to regain the voltage losses after being subjected to disturbances. The paper developed a Voltage Stability Index (VSI) method for placement of Capacitor Banks (CBs) in a radial network. The power system network is modelled and simulated in the Real Time Digital Simulator (RTDS) and DigSilent environment respectively. The effect of CBs is to reduce the series impedance, thereby reducing the voltage drop and line losses and to improve the power factor and power system stability limits. The shunt compensation technique is studied on the twelve bus radial distribution network and is implemented in Digsilent and RTDS environment respectively. The simulations are carried-out for full-load, overload and reactive power compensation conditions. The result provides that a capacitor bank on the radial network improves the voltage stability limits, maximizes line power flows, reduces network losses, and improves power factor.