An Empirical Analysis of the Off-Balance Sheet Activities of Indian Banks

The article traces the determinants of off-balance sheet activities in the Indian banking sector. Using data for the period 1996 to 2004, the article finds that not only regulatory factors, but also market forces captured by banks-specific characteristics and macro-economic conditions are at work in the diffusion pattern of off-balance sheet (OBS) activities. From the regulatory standpoint, while capital adequacy is dominant in the case of public sector banks, non-performing assets seem to he a prime concern for foreign banks, in addition to public sector banks. Among others, at the bank-specific level, size is an important consideration for public sector and foreign banks, while profits are a prime mover only for new private banks. Finally, the macro-economic environment seems to have played an important role in affecting OBS diffusion, more so for public sector and new private banks.