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Does lending behaviour of banks in emerging economies vary by ownership? Evidence from the Indian banking sector

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  • Bhaumik, Sumon Kumar
  • Piesse, Jenifer

Abstract

While much has been discussed about the relationship between ownership and financial performance of banks in emerging markets, literature about cross-ownership differences in credit market behaviour of banks in emerging economies is sparse. Using a portfolio choice model and bank-level data from India for 9 years (1995-96 to 2003-04), we examine banks' behaviour in the context of credit markets of an emerging market economy. Our results indicate that, in India, the data for the domestic banks fit well the aforementioned portfolio-choice model, especially for private banks, but the model cannot explain the behaviour of foreign banks. In general, allocation of assets between risk-free government securities and risky credit is affected by past allocation patterns, stock exchange listing (for private banks), risk averseness of banks, regulations regarding treatment of NPA, and ability of banks to recover doubtful credit. It is also evident that banks deal with changing levels of systematic risk by altering the ratio of securitized to non-securitized credit.

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Bibliographic Info

Article provided by Elsevier in its journal Economic Systems.

Volume (Year): 32 (2008)
Issue (Month): 2 (June)
Pages: 177-196

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Handle: RePEc:eee:ecosys:v:32:y:2008:i:2:p:177-196

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References

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Citations

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Cited by:
  1. Bhaumik, Sumon Kumar & Kumbhakar, Subal C., 2010. "Is the post-reform growth of the Indian manufacturing sector efficiency driven? Empirical evidence from plant-level data," Journal of Asian Economics, Elsevier, vol. 21(2), pages 219-232, April.
  2. Fungacova, Zuzana & Solanko, Laura, 2008. "Risk-taking by Russian banks: Do location, ownership and size matter?," BOFIT Discussion Papers 21/2008, Bank of Finland, Institute for Economies in Transition.
  3. Sumon Bhaumik & Shubhasish Gangopadhyay & Shagun Krishnan, 2006. "Policy, Economic Federalism & Product Market Entry: The Indian Experience," William Davidson Institute Working Papers Series wp843, William Davidson Institute at the University of Michigan.
  4. Tabak, Benjamin M. & Langsch Tecles, Patricia, 2010. "Estimating a Bayesian stochastic frontier for the Indian banking system," International Journal of Production Economics, Elsevier, vol. 125(1), pages 96-110, May.
  5. Oleksandr Talavera & Andriy Tsapin & Oleksandr Zholud, 2006. "Macroeconomic Uncertainty and Bank Lending: The Case of Ukraine," Discussion Papers of DIW Berlin 637, DIW Berlin, German Institute for Economic Research.
  6. Bhaumik, Sumon Kumar & Dang, Vinh & Kutan, Ali M., 2011. "Implications of bank ownership for the credit channel of monetary policy transmission: Evidence from India," Journal of Banking & Finance, Elsevier, vol. 35(9), pages 2418-2428, September.
  7. Hou, Xiaohui & Wang, Qing, 2013. "Implications of banking marketization for the lending channel of monetary policy transmission: Evidence from China," Journal of Macroeconomics, Elsevier, vol. 38(PB), pages 442-451.
  8. Berger, Allen N. & Klapper, Leora F. & Martinez Peria, Maria Soledad & Zaidi, Rida, 2008. "Bank ownership type and banking relationships," Journal of Financial Intermediation, Elsevier, vol. 17(1), pages 37-62, January.
  9. Rupayan Pal, 2010. "How Much Should You Own? Cross-ownership and Privatization," Working Papers id:2810, eSocialSciences.
  10. Bhaumik, Sumon Kumar & Das, Pranab Kumar & Kumbhakar, Subal C., 2012. "A stochastic frontier approach to modelling financial constraints in firms: An application to India," Journal of Banking & Finance, Elsevier, vol. 36(5), pages 1311-1319.

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