Procyclicality of Banks - The Indian Experience

31 Pages Posted: 10 Oct 2012

See all articles by Vijaykrishna Venkataraman

Vijaykrishna Venkataraman

University of Madras - School of Economics; D&B TransUnion Analytic & Decision Services

Date Written: April 1, 2008

Abstract

Supervisors and policy makers pay increasing attention to the possible procyclical nature of banks’ behaviour. To ensure macroeconomic and financial stability, it is important that regulators understand whether, and to what extent, banks are affected by the macroeconomic and lending cycles. This paper attempts to provide a comprehensive investigation of these issues using a dataset of Indian commercial banking sector over the period 1996-2007. By estimating static panel data model, it tries to investigate whether loan loss provisions and non-performing assets show a cyclical pattern. The estimated relations are studied to analyse the sector wise (public sector banks, foreign banks and private sector banks) behaviour of Indian banks to assess the effects of macroeconomic shocks on banks’ balance sheets.

Keywords: procyclicality, loan loss provisions, non-performing assets, lending cycle

Suggested Citation

Venkataraman, Vijaykrishna, Procyclicality of Banks - The Indian Experience (April 1, 2008). Available at SSRN: https://ssrn.com/abstract=2157396 or http://dx.doi.org/10.2139/ssrn.2157396

Vijaykrishna Venkataraman (Contact Author)

University of Madras - School of Economics ( email )

Gandhi Mandapam
Chennai-25, Tamilnadu 600025
India

D&B TransUnion Analytic & Decision Services ( email )

Chennai, Tamil Nadu 600 096
India

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