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Credit Growth and Response to Capital Requirements: Evidence from Indian Public Sector Banks

Author

Listed:
  • Abhiman Das

    (Reserve Bank of India)

  • Ashok K. Nag

    (Reserve Bank of India)

Abstract

This paper makes an attempt to assess the impact of imposition of uniform capital requirement norm on flow of credit to the business sector by the most important segment of the Indian banking sector, i.e., Indian public sector banks. A simple decomposition analysis of growth in assets portfolio as well as a model based analysis of credit growth for the Indian public sector banks corroborated that (a) in the post reform period, public sector banks did shift their portfolio in a way that reduce their capital requirements and (b) adoption of stricter risk management practice in respect of bank lending in the post reform period and its interplay with minimum capital requirements (regulatory pressure)have had a dampening effect on the overall credit supply.

Suggested Citation

  • Abhiman Das & Ashok K. Nag, 2004. "Credit Growth and Response to Capital Requirements: Evidence from Indian Public Sector Banks," Industrial Organization 0411003, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpio:0411003
    Note: Type of Document - pdf; pages: 8. Published in 'Economic and Political Weekly' August 10, 2002
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    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/io/papers/0411/0411003.pdf
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    References listed on IDEAS

    as
    1. Peek, Joe & Rosengren, Eric, 1995. "Bank regulation and the credit crunch," Journal of Banking & Finance, Elsevier, vol. 19(3-4), pages 679-692, June.
    2. Allen N. Berger & Gregory F. Udell, 1993. "Did risk-based capital allocate bank credit and cause a credit crunch in the U.S.?," Finance and Economics Discussion Series 93-41, Board of Governors of the Federal Reserve System (U.S.).
    3. C. H. Furfine, 2000. "Evidence on the response of US banks to changes in capital requirements," BIS Working Papers 88, Bank for International Settlements.
    4. Hancock, Diana & Laing, Andrew J. & Wilcox, James A., 1995. "Bank capital shocks: Dynamic effects on securities, loans, and capital," Journal of Banking & Finance, Elsevier, vol. 19(3-4), pages 661-677, June.
    5. Joseph G. Haubrich & Paul Wachtel, 1993. "Capital requirements and shifts in commercial bank portfolios," Economic Review, Federal Reserve Bank of Cleveland, vol. 29(Q III), pages 2-15.
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    Cited by:

    1. Sreejata Banerjee, 2012. "Basel I and Basel II Compliance: Issues for Banks in India," Working Papers 2012-068, Madras School of Economics,Chennai,India.

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    • L - Industrial Organization

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