Credit growth and macroprudential regulation: is ownership important?
Abstract
Purpose
This paper aims to examine the impact of macroprudential policies (MPPs) on credit growth. Towards this end, the author uses quarterly data on Indian commercial banks for the period 2002:1 to 2012:1 that subsume the imposition of MPPs.
Design/methodology/approach
The analysis uses the dynamic panel data (DPD) methodology to test the relevant hypotheses regarding the interlinkage between credit growth, bank ownership and MPPs. The DPD methodology has the advantage of being able to address the endogeneity between credit growth and macroprudential regulation.
Findings
The results appear to suggest that MPPs targeted on provisions are relatively more effective in limiting credit expansion. When considered in conjunction with bank ownership, they appear to have much more force in moderating the severity of the credit cycle.
Research limitations/implications
The lack of an extensive database on the relevant variables might hinder the robustness of the results. It is possible that MPPs are effective in curbing loan extension to targeted sectors, which cannot be adequately examined using aggregate loan data.
Practical implications
The role and usefulness of MPPs in limiting the build-up of risk has been widely discussed in recent times. Judged from that standpoint, the paper contributes to this literature by examining the issue for a leading emerging economy.
Originality/value
To the best of the author’s knowledge, this is one of the earliest studies to examine this issue in a systematic manner for India.
Keywords
Acknowledgements
The author thanks the Special Issue Editors and anonymous reviewers for providing notes that significantly improved the manuscript in all stages of the peer review process. The author declares that he has no conflict of interest with regard to the text and material used in this paper. The usual disclaimer applies.
Citation
Ghosh, S. (2015), "Credit growth and macroprudential regulation: is ownership important?", International Journal of Law and Management, Vol. 57 No. 3, pp. 167-182. https://doi.org/10.1108/IJLMA-02-2014-0008
Publisher
:Emerald Group Publishing Limited
Copyright © 2015, Emerald Group Publishing Limited