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Determinants, Persistence and value implications of liquidity creation: An evidence from Indian Banks

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  • Grover, Naina
  • Sinha, Pankaj

Abstract

This study explores the micro and macro factors affecting liquidity created by Scheduled Commercial banks (excluding Regional Rural Bank) in India using the Generalized Method of Moments. Two measures of liquidity creation, the broad and narrow measures, were formed using RBI data available on Indian banks for the period 2005 to 2018. The study found that the variation in the broad measure was explained by equity ratio, market share, GDP, gross savings and lending rate whereas narrow measure was explained by equity ratio, market share, size and lending rate. Profitability and operating profit ratios did not affect liquidity creation. The crisis negatively affected both the measures of liquidity creation. The impact was more severe for the broad measure as compared to the narrow measure. We found the negative influence of capital on liquidity created by banks, which confirms that the implementation of Basel III norms in Indian banks will have negative implications for liquidity creation. Banks are perceived positively in the market when they create more liquidity.

Suggested Citation

  • Grover, Naina & Sinha, Pankaj, 2019. "Determinants, Persistence and value implications of liquidity creation: An evidence from Indian Banks," MPRA Paper 94280, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:94280
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    References listed on IDEAS

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    Cited by:

    1. azahar, intan nur asyiqin, 2019. "An Analysis Of Performance In E-Commerce Industry," MPRA Paper 97210, University Library of Munich, Germany.

    More about this item

    Keywords

    Liquidity creation; micro and macro factors; broad and narrow measures; Indian Banks; influence of capital on liquidity;

    JEL classification:

    • G0 - Financial Economics - - General
    • G01 - Financial Economics - - General - - - Financial Crises
    • G1 - Financial Economics - - General Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G2 - Financial Economics - - Financial Institutions and Services
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G3 - Financial Economics - - Corporate Finance and Governance
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • M4 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting

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