Banking Expansion and Income Growth in India

Mohd Anwar and Imlak Shaikh
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Mohd Anwar: Department of Information Technology, Reserve Bank of India, Mumbai 410210, Maharastra, India
Imlak Shaikh: Department of Accounting and Finance, Management Development Institute Gurgaon, Mehrauli Road, Sukhrali, Gurgaon 122007, Haryana, India

Sustainability, 2018, vol. 10, issue 8, 1-18

Abstract: In this article, we examine the impact of banking expansion on income growth in India. The banking expansion indices have been calculated across the region and states/Union Territories, providing the insight that all the regions, excluding the western region, are exhibiting banking expansion indices in the low range. The state-wise analysis indicates that all states exhibit a low-range index, excluding the state of Maharashtra and the UTs of Delhi and Chandigarh. Further, for the examination of the linkage between banking expansion and income growth, a panel data set was prepared for the 23 states/UTs over the period from 1990 to 2015. The panel data regression analysis approach was applied for the estimation of the regression model. It is apparent from the results that the banking expansion has significant and positive effects on credit disbursement. The results indicate that a one crore increase in deposit mobility causes 0.81 crores of increase in credit disbursement. Moreover, credit disbursement and deposit mobilization have a substantial and positive effect on the Net State Domestic Product. Moreover, a 1 percent increase in credit causes a 0.46 percent increase in NSDP, and a 1 percent increase in deposits causes a 0.57 percent increase in NSDP. Further, Net State Domestic Product has a significant and positive effect on the income of individuals. It is evident that a 1 percent increase in NSDP causes a 0.54 percent increase in per capita NSDP, while a 1 percent increase in capital expenditure causes a 0.13 percent increase in per capita NSDP.

Keywords: banking expansion; national income; panel data; credit disbursement; deposit mobilization (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2018
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