The Risk Aversion of Banks in Emerging Credit markets: Evidence from India
AbstractUsing bank-level data from India, for nine years (1995-96 to 2003-04), we examine banks’ behavior in the context of emerging credit markets. Our results indicate that the credit market behavior of banks in emerging markets is determined by past trends, the diversity of the potential pool of borrowers to whom a bank can lend, and regulations regarding treatment of NPA and lending restrictions imposed by the Reserve Bank of India. Finally, we find evidence that suggest that credit disbursal by banks can be facilitated by regulatory and institutional changes that help banks mitigate the problems associated with enforcement of debt covenants and treatment of NPA on the balance sheets. On the basis of these results, we speculate on some possible policy recommendations.
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Bibliographic InfoPaper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number wp774.
Date of creation: 01 Aug 2005
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Indian banking; Development; Credit-to-deposit ratio; Risk aversion;
Find related papers by JEL classification:
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-06-03 (All new papers)
- NEP-CBA-2006-06-03 (Central Banking)
- NEP-CWA-2006-06-03 (Central & Western Asia)
- NEP-DEV-2006-06-03 (Development)
- NEP-FIN-2006-06-03 (Finance)
- NEP-FMK-2006-06-03 (Financial Markets)
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