The IUP Journal of Bank Management
Determinants of Bank Lending Behavior in India: An ARDL Approach

Article Details
Pub. Date : Aug, 2022
Product Name : The IUP Journal of Bank Management
Product Type : Article
Product Code : IJBM010822
Author Name : Amith Vikram Megaravalli and Aniruddha Das
Availability : YES
Subject/Domain : Finance
Download Format : PDF Format
No. of Pages : 20



The purpose of this paper is to determine the lending behavior of Indian banks. Bankspecific variables like bank size, capital adequacy ratio, provision for credit risk, expense ratio and return on assets, and macroeconomic variables like GDP and inflation are considered in the study to determine the bank lending behavior. The study uses a sample of 39 public and private sector banks from 2011 to 2018 and uses Autoregressive Distributed Lag (ARDL) approach. The results of the study indicate that bank-specific characteristics and macroeconomic variables play a crucial role in determining bank lending behavior. The outcome of the study further puts limelight on the drivers of lending behavior and helps develop the policy in that direction, where credit management of the banks is more effective in channelizing the supply of money to the right segment, so that it can contribute to the development of the economy.


The increasing Non-Performing Assets (NPAs) have been a major concern for policymakers in India, as this not only affects the growth of banks but also eats up their profits, thereby decreasing their net earnings. Increasing NPAs will increase operating costs, as the banks spend more on monitoring these assets to ensure that they do not end up having more bad debts (Berger and DeYoung, 1997). Operating expenses include direct expenses such as salaries paid to employees and expenses related to running branch offices. India provides adequate data in terms of understanding the credit policies from an emerging and developing country's perspective.

Post economic slowdown, the conceptual proposition of 'decoupling' was the point of discussion relating to lending policies and financial products (Dooley and Hutchison, 2009).

Dooley and Hutchison (2009) analyzed the after-recession effects in several markets, including US and its financial markets. However, it excluded India in its analysis, which becomes an attractive case and is also the main motivation for this study to look deeper into micro and macro-level factors affecting the lending behavior of banks during 2011 and 2018. This period becomes significant because Indian banks, during post Global Financial Crisis, had strict