Do capital inflows affect domestic bank credit? Empirical evidence from India

• Published in: Future business journal Vol. 9; no. 1; pp. 28 - 10
• Main Authors: Ansari, Zeeshan Nezami, Dar, Muzffar Hussain, Zafar, Shadman
• Format: Journal Article
• Language: English
• Published: Berlin/Heidelberg Springer Berlin Heidelberg 01.12.2023; Springer Nature B.V; SpringerOpen
• Subjects: ARDL model; Bank reserves; Banking industry; Borrowing; Business and Management; Capital inflows; Capital markets; Central banks; Co-integration; Committees; Developing countries; Domestic bank credit; Economic crisis; Economic growth; Economic reform; Equity; Financial services; Fixed exchange rates; Foreign exchange markets; Foreign exchange rates; Foreign investment; GDP; Gross Domestic Product; India; Inflation; Interest rates; LDCs; Liberalization; Retail banking; India; Co-integration; Domestic bank credit; Capital inflows; F330; ARDL model; India; E510
• ISSN: 2314-7210; 2314-7202; 2314-7210
• DOI: 10.1186/s43093-023-00203-6

This paper studies multivariate dynamic analysis of capital inflows in relation with domestic bank’s credit which has not been investigated earlier adequately in the context of Indian economy. Using autoregressive distributed lag (ARDL) model, we find the existence of co-integration over the period 1991 Q3 to 2022 Q1. The long-run ARDL regression model results show net equity inflows, i.e. net foreign direct investment, and net non-equity inflows, i.e. foreign loan, are significant to influence domestic bank credit. Result also reveals that depreciation of exchange rate and current account (trade) deficit increase bank credit. Outcome of this research contributes significantly to frame effective monetary policy in the Indian context.