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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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Sumon Kumar Bhaumik ()
Jenifer Piesse

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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 bank-level data from India, and a portfolio-choice model, for nine years (1995-96 to 2003-04), we examine banks’ behaviour in the context of emerging credit markets. 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. These results have implications for disbursal of credit to small and medium enterprises in India.

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Paper provided by Centre for Economic Development and Institutions(CEDI), Brunel University in its series CEDI Discussion Paper Series with number 06-01.

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Length: 35 pages
Date of creation: Mar 2006
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Handle: RePEc:edb:cedidp:06-01

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  2. Bulir, Ales, 1998. "Business Cycle in Czechoslovakia under Central Planning: Were Credit Shocks Causing It?," Journal of Comparative Economics, Elsevier, vol. 26(2), pages 226-245, June. [Downloadable!] (restricted)
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  3. Atif Mian, 2006. "Distance Constraints: The Limits of Foreign Lending in Poor Economies," Journal of Finance, American Finance Association, vol. 61(3), pages 1465-1505, 06. [Downloadable!] (restricted)
  4. Clarke, George R.G. & Crivelli, Juan Miguel & Cull, Robert, 2005. "The direct and indirect impact of bank privatization and foreign entry on access to credit in Argentina's provinces," Journal of Banking & Finance, Elsevier, vol. 29(1), pages 5-29, January. [Downloadable!] (restricted)
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  6. Sapienza, Paola, 2004. "The effects of government ownership on bank lending," Journal of Financial Economics, Elsevier, vol. 72(2), pages 357-384, May. [Downloadable!] (restricted)
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  9. Da Rin, Marco & Hellmann, Thomas, 2002. "Banks as Catalysts for Industrialization," Journal of Financial Intermediation, Elsevier, vol. 11(4), pages 366-397, October. [Downloadable!] (restricted)
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  10. Bhaumik, Sumon Kumar & Dimova, Ralitza, 2004. "How important is ownership in a market with level playing field?: The Indian banking sector revisited," Journal of Comparative Economics, Elsevier, vol. 32(1), pages 165-180, March. [Downloadable!] (restricted)
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  11. Sarkar, Jayati & Sarkar, Subrata & Bhaumik, Sumon K., 1998. "Does Ownership Always Matter?--Evidence from the Indian Banking Industry," Journal of Comparative Economics, Elsevier, vol. 26(2), pages 262-281, June. [Downloadable!] (restricted)
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  15. Ma, Chien-Hui & Smith, Bruce D., 1996. "Credit market imperfections and economic development: Theory and evidence," Journal of Development Economics, Elsevier, vol. 48(2), pages 351-387, March. [Downloadable!] (restricted)
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