India’s Banks: Lending to Productive Firms?

Siddharth George, Divya Kirti, Soledad Martinez Peria and Rajesh Vijayaraghavan

No 2022/073, IMF Working Papers from International Monetary Fund

Abstract: Capital misallocation is widely thought to be an important factor underpinning productivity and income gaps between advanced and emerging economies. This paper studies how well Indian banks allocate capital across firms with varying levels of productivity. The analysis reveals that the link between productivity and bank credit growth is weaker for firms with significant ties to public sector banks, especially in years when public sector banks represent a large share of new credit. Large flows of credit to unproductive firms represent important missed growth opportunities for more productive firms. These results suggest that measures to improve governance of public sector banks, potentially including privatization, would help reduce capital misallocation.

Keywords: Productivity; bank lending; allocation of credit; capital misallocation; public sector bank; PSB dependence; PSB share; credit growth; Bank credit; Credit; Productivity; State-owned banks; Commercial banks; Global (search for similar items in EconPapers)
Pages: 22
Date: 2022-04-29
New Economics Papers: this item is included in nep-ban, nep-dev, nep-eff and nep-fdg
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.imf.org/external/pubs/cat/longres.aspx?sk=517440 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:2022/073

Ordering information: This working paper can be ordered from
http://www.imf.org/external/pubs/pubs/ord_info.htm

Access Statistics for this paper

More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC.
Bibliographic data for series maintained by Akshay Modi ().