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Credit Growth, Bank Soundness and Financial Fragility

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  • Saibal Ghosh

    (Saibal Ghosh is presently with the Qatar Central Bank, Doha, Qatar, on lien from the Reserve Bank of India. The views expressed and the approach pursued in the article reflects the personal opinion of the author. Email: sai_ghosh@hotmail.com)

Abstract

Using data on Indian banks for 1996–2008, the article examines the interconnection among credit growth, bank soundness and financial fragility. The analysis appears to indicate that higher credit growth amplifies bank fragility. Besides, the results point to the fact that sounder banks increase loan supply. Coming to bank ownership, the evidence testifies that credit growth has been rapid in State-owned and de novo private banks. In terms of policy implications, the analysis appears to suggest the need for giving priority to risk-based supervision as a way to contain the potential risks associated with rapid credit growth.

Suggested Citation

  • Saibal Ghosh, 2010. "Credit Growth, Bank Soundness and Financial Fragility," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 11(1), pages 69-98, March.
    • Handle: RePEc:sae:soueco:v:11:y:2010:i:1:p:69-98
    DOI: 10.1177/139156141001100105
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    More about this item

    Keywords

    Banking; Credit Growth; Z-score; Non-performing Loans; India; JEL: G21; JEL: G24; JEL: P52;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • P52 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems - - - Comparative Studies of Particular Economies

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