A Closer Look at Banks' Behaviour in Emerging Credit Markets: Evidence from the Indian Banking Industry

Abstract

Using bank-level data from India, for six years (1995-96 to 2000-01), 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.

Keywords: Credit market, Emerging economies, Risk averseness, Panel data analysis

JEL Classification: D81, E44, G21