Bank lending and loan quality: an emerging economy perspective

Pallavi Chavan () and Leonardo Gambacorta
Additional contact information
Pallavi Chavan: Reserve Bank of India

Empirical Economics, 2019, vol. 57, issue 1, No 1, 29 pages

Abstract: Abstract This paper analyses how non-performing loans (NPLs) in the emerging economy of India behave through the cycle. We find that a one-percentage point increase in loan growth is associated with an increase in NPLs over total advances (NPL ratio) of 4.1% in the long run with the response being higher during expansionary phases. Furthermore, NPL ratios of banks are found to be sensitive to the interest rate environment and the overall growth of the economy. Notwithstanding differences in management and governance structures, there is a procyclical risk-taking response to credit growth in the case of both public and private banks with private banks being more reactive to changes in interest rate and business cycle conditions.

Keywords: Procyclicality; Loan quality; Bank lending; Emerging economy; Bank ownership; Moral hazard (search for similar items in EconPapers)
JEL-codes: E32 G01 G21 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
http://link.springer.com/10.1007/s00181-018-1436-5 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

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:spr:empeco:v:57:y:2019:i:1:d:10.1007_s00181-018-1436-5

Ordering information: This journal article can be ordered from
http://www.springer. ... rics/journal/181/PS2

DOI: 10.1007/s00181-018-1436-5

Access Statistics for this article

Empirical Economics is currently edited by Robert M. Kunst, Arthur H.O. van Soest, Bertrand Candelon, Subal C. Kumbhakar and Joakim Westerlund

More articles in Empirical Economics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().