The Risk Aversion of Banks in Emerging Credit markets: Evidence from India
Sumon K. Bhaumik
Aston University, Aston Business School; Institute for the Study of Labor (IZA); University of Michigan at Ann Arbor - Stephen M. Ross School of Business, William Davidson Institute
Bournemouth University; University of Stellbosch
William Davidson Institute Discussion Paper No. 774
Using 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.
Number of Pages in PDF File: 30
Keywords: Credit market, Emerging economies, Risk averseness, Panel data analysis
JEL Classification: D81, E44, G21working papers series
Date posted: October 20, 2004
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