Distributional Implications of Bank Branch Expansions: Evidence from India

Nirupama Kulkarni, Kanika Mahajan and S. K. Ritadhi
Additional contact information
S. K. Ritadhi: Ashoka University

Working Papers from Centre for Advanced Financial Research and Learning (CAFRAL)

Abstract: Does financial deepening affect capital investment by credit constrained firms? We examine this question by exploiting a nationwide branch expansion policy in India that incentivized banks to open branches in “underbanked” districts i.e., where the ex-ante bank branch density was less than the national district level average. Extending a regression discontinuity design, we find large increases in both capital expenditures and credit growth undertaken by manufacturing establishments in underbanked districts following the policy intervention. The increase in capital spending is driven by small and young establishments, which are also the most likely to be credit constrained. Two key channels explain our findings: increased physical proximity of lenders to borrowers and the comparative advantage of select banks in lending to small manufacturing units. Our results show that financial deepening can aid in the relaxation of credit constraints in developing economies with imperfect capital and credit markets

Pages: 83
Date: 2023-01
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.cafral.org.in/sfControl/content/Speech/36202350805AMNirupama.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:ris:cafral:022281

Access Statistics for this paper

More papers in Working Papers from Centre for Advanced Financial Research and Learning (CAFRAL) Contact information at EDIRC.
Bibliographic data for series maintained by Anup B. Sonawane ().