A closer look at banks’ behaviour in emerging credit markets? Evidence from the Indian banking industry

Bhaumik, S K and Piesse, J (2004) A closer look at banks’ behaviour in emerging credit markets? Evidence from the Indian banking industry. Working Paper. London Business School Aditya V. Birla India Centre Working Paper Series.

Abstract

Using banklevel data from India, for six years (199596 to 200001), we examine banks’ behaviour in the context of emerging credit markets. Our results indicate that the credit market behaviour of banks in emerging markets is largely determined by past trends. We also find evidence to support the hypothesis that prudential regulations have a significant impact on the banks’ behaviour with respect to credit disbursal. Finally, we find evidence that suggest that credit expansion by banks in emerging markets may be significantly constrained by the inability of the banks to reduce the liquidity risk associated with nonsecuritised loans.