The Risk Aversion of Banks in Emerging Credit markets: Evidence from India

Sumon Bhaumik and Jenifer Piesse

No wp774, William Davidson Institute Working Papers Series from William Davidson Institute at the University of Michigan

Abstract: 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.

Keywords: Indian banking; Development; Credit-to-deposit ratio; Risk aversion (search for similar items in EconPapers)
JEL-codes: G21 O16 (search for similar items in EconPapers)
Pages: pages
Date: 2005-08-01
New Economics Papers: this item is included in nep-cba, nep-cwa, nep-dev, nep-fin and nep-fmk
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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