Bank capital buffer, bank credit and economic growth: evidence from India
by Aniruddha Durafe; Ankur Jha
Afro-Asian J. of Finance and Accounting (AAJFA), Vol. 8, No. 3, 2018

Abstract: This paper studies the procyclical behaviour of bank capital and bank credit by investigating the causal relationship among bank capital, bank credit and economic growth in government-owned public sector banks of India. In this study Granger causality test, cross correlation function and Pearson correlation test are applied. Also, augmented Dickey-Fuller test is used to find out the stationarity of time series data. Using bank level data of 322 observations from 23 banks during 2000-2013, the study found that bank capital buffer and tier-1 capital has a tendency to induce procyclicality in bank credit. Further, the study found that there are bi-directional causality and positive correlation between bank credit and economic growth. The result confirms the presence of causal relationship and provides strong evidence to the presence of procyclicality and its associated risk in the economy. The study suggests that banks should maintain adequate bank capital buffer to mitigate the risk associated with the procyclicality. It provides support to the implementation of RBI guidelines on the countercyclical buffer by all banks in India.

Online publication date: Thu, 26-Jul-2018

The full text of this article is only available to individual subscribers or to users at subscribing institutions.

 
Existing subscribers:
Go to Inderscience Online Journals to access the Full Text of this article.

Pay per view:
If you are not a subscriber and you just want to read the full contents of this article, buy online access here.

Complimentary Subscribers, Editors or Members of the Editorial Board of the Afro-Asian J. of Finance and Accounting (AAJFA):
Login with your Inderscience username and password:

Username:        Password:          Forgotten your password?

Want to subscribe?
A subscription gives you complete access to all articles in the current issue, as well as to all articles in the previous three years (where applicable). See our Orders page to subscribe.

If you still need assistance, please email subs@inderscience.com