Depositor discipline in Indian banking: Separating facts from folklore

Saibal Ghosh and Abhiman Das

MPRA Paper from University Library of Munich, Germany

Abstract: The paper traces the determinants of depositor discipline in Indian banking. Using data for the period 1997:1 to 2002:4, the findings reveal that, while bank-specific factors are dominant in case of state-owned banks, systemic variables tend to overwhelm bank-specific factors in explaining behaviour of depositors of private banks. In case of private and foreign banks, policy announcements have an important bearing on the dependent variable. For state-owned banks, larger asset translates into higher deposit growth, suggesting that depositors are sensitive to the ‘too-big-to-fail’ effect. Finally, insured depositors tend to exercise discipline by compelling banks to pay a higher price on deposits.

Keywords: depositor discipline; contagion effect; deposit insurance; banking; India (search for similar items in EconPapers)
JEL-codes: C23 G21 (search for similar items in EconPapers)
Date: 2006
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