The Impacts of Foreign Banks’ Entry on Credit Allocation in India
0
조회
0
다운로드
1
인용
0
참고문헌
키워드
초록
The foreign banks’ expansion has substantially increased since the early 1990s during the trend of economic globalization in most developing countries including India. The main concern of host countries is that foreign banks’ entry sometimes directly and indirectly leads to a decrease in credit availability for socially weak industries, such as the agricultural sector and Small Scale Industries (SSI). This kind of cherry-picking behavior leads to an adverse impact on not only the performance of socially weak industries, but also economic growth in host countries. It is argued that foreign banks have comparative disadvantage in information; hence, they are reluctant to disburse credits to socially weak sectors. Furthermore, the foreign banks’ entry intensifies the competition in the banking industry, thereby decreasing the profit margin of banks. Therefore, banks in a competitive market are not willing to take risks such as credit disbursal to the sectors that may be less profitable. Our analysis shows that the increased presence of foreign banks indirectly reduced the credit allocation to the agricultural sector and SSI from FY1986 to FY2007 in spite of the Priority Sector Lending policy. The presence of foreign banks intensified the competition in the banking sector and introduced the advanced technology to the domestic banks. This adversely affected the credit availability to the socially weak industries. Therefore, it is necessary to prepare for further liberalization of foreign banks’ entry while reducing the negative impact and increasing the positive impact on the Indian banking sector.
Abstract
The foreign banks’ expansion has substantially increased since the early 1990s during the trend of economic globalization in most developing countries including India. The main concern of host countries is that foreign banks’ entry sometimes directly and indirectly leads to a decrease in credit availability for socially weak industries, such as the agricultural sector and Small Scale Industries (SSI). This kind of cherry-picking behavior leads to an adverse impact on not only the performance of socially weak industries, but also economic growth in host countries. It is argued that foreign banks have comparative disadvantage in information; hence, they are reluctant to disburse credits to socially weak sectors. Furthermore, the foreign banks’ entry intensifies the competition in the banking industry, thereby decreasing the profit margin of banks. Therefore, banks in a competitive market are not willing to take risks such as credit disbursal to the sectors that may be less profitable. Our analysis shows that the increased presence of foreign banks indirectly reduced the credit allocation to the agricultural sector and SSI from FY1986 to FY2007 in spite of the Priority Sector Lending policy. The presence of foreign banks intensified the competition in the banking sector and introduced the advanced technology to the domestic banks. This adversely affected the credit availability to the socially weak industries. Therefore, it is necessary to prepare for further liberalization of foreign banks’ entry while reducing the negative impact and increasing the positive impact on the Indian banking sector.
참고문헌 (35)
- "Banking Reforms in India" (2004)[URL]
- Berger, A. N., "Exporting Financial Institutions Management via Foreign Direct Investment Mergers and Acquisitions", Journal of International Money and Finance, 23(3), pp.333~366 (2004)
- Berger, A.N., "Financial System Design: The Case for Universal Banking" (1996), BurrRidge IL
- Bhaumik, S.K., "Does Lending Behaviour of Banks in Emerging Economies Vary by Ownership? Evidence from the Indian Banking Sector", Economic Systems, 32(2), pp.177~196 (2008)
- Deos Foreign Bank Penetration Reduce Access to Credit in Developing Countries? Evidence From Asking Borrowers, "Clarke, G. R. G.", World Bank, ~, pp.World Bank Policy Research Working Paper, 2716 (2001)
- Cole, R. A., "Cookie Cutter vs. Character: The Micro Structure of Small Business Lending by Large and Small Banks", Journal of Financial and Quantitative Analysis, 39(2), pp.227~251 (2004)
- Foreign Bank Entry and Credit Allocation in Emerging Markets, "Degryse, H. A.", International Monetary Fund, ~, pp.International Monetary Fund Working Paper, No.09 (2009), 270
- Dell’Ariccia, G., "Adverse Selection as a Barrier to Entry in the Banking Industry", Rand Journal of Economies, 30(3), pp.515~534 (1999)
- Detragiache, E., "How Do Foreign Banks Fare in Crises?:Evidence from Malaysia", Journal of Financial Stability, 2(3), pp.217~242 (2006)
- Detragiache, E., "Foreign Banks in Poor Countries:Theory and Evidence", The Journal of Finance, 63(5), pp.2123~2160 (2008)
- Ghosh, P., "A Reader in Development Economics" (2000), Blackwell
- Lending by Example: Direct and Indirect Effects of Foreign Banks in Emerging Markets, "Giannetti, M.", Centre for Economic Policy Research, ~, pp.Centre for Economic Policy Research Discussion Paper, 3968 (2008)
- Gormley, T. A., "The Impact of Foreign Bank Entry in Emerging Markets:Evidence from India", Journal of Financial Intermediation, 19(1), pp.26~51 (2010)
- "Can Firms Adjust Their Opaqueness to Lenders? Evidence from Foreign Bank Entry into India" (2009)[URL]
- Report of the Committee on Financial Sector Reform, "Government of India", Planning Commission, ~ (2008)
- Lin, H., "Foreign bank entry and firms’ access to bank credit: Evidence from China", Journal of Banking and Finance, 35, pp.1000~1010 (2011)
- Banking on Foreigners:The Behavior of International Bank Lending to Latin America, 1985-2000, "Martinez Peria, M. S.", World Bank Policy Research, ~, pp.World Bank Policy Research Working Paper, 2893 (2002)
- "Information: Hard and Soft" (2004)[URL]
- Competition in Indian Banking, "Prasad, A.", International Monetary Fund, ~, pp.International Monetary Fund Working Paper, WP (2005), 05[DOI]
- Rao, K. S. R., "Commercial Bank Lending to Small-Scale Industry", Economic and Political Weekly, 41(11), pp.1025~1040 (2006)
- "A Profile of Banks"[URL]
- Reserve Bank of India, "Basic Statistical Returns of Scheduled Commercial Banks in India", Reserve Bank of India, ~
- Reserve Bank of India, "Handbook of Statistics on Indian Economy", Reserve Bank of India, ~
- Reserve Bank of India, "Master Circular-Priority Sector Lending-Targets and Classification", ~ (2015)
- Reports on Currency and Finance, "Reserve Bank of India", Reserve Bank of India, ~
- Reserve Bank of India, "Statistical Tables Relating to Banks in India", Reserve Bank of India, ~
- Reserve Bank of India, "The Framework for Setting Up of Wholly Owned Subsidiaries by Foreign Banks in India", ~ (2013)
- Reserve Bank of India, "The Roadmap for Presence of Foreign Bank", Reserve Bank of India, ~ (2005)
- Sahu, G.B., "Banking Sector Reform and Credit Flow to Indian Agriculture", Economic and Political Weekly, 41, pp.1035~1040 (2005)
- Sarma, M., "Do Foreign Banks in India Indulge in ‘Cream-Skimming’?", Economic and Political Weekly, 51(12), pp.120~125 (2016)
- Financial Globalization and the Transmission of Credit Supply Shocks: Evidence from an Emerging Market, "Schnabl, P.", New York University, ~, pp.New York University Working Paper, FIN-08-008 (2009)
- Stiglitz, J, "Credit Rationing with Imperfect Information", The American Economic Review, 71(3), pp.393~410 (1981)
- The Supply of Credit by Multinational Banks in Developing and Transition Economies: Determinants and Effects, "Weller, C. E.", United Nationals Development Policy Analysis Division, ~, pp.United Nationals Development Policy Analysis Division DESA Discussion Paper, 16 (2001)