India’s Banks: Lending to Productive Firms?
IMF Working Papers, April 29, 2022
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Bibliographic details
- Authors: Siddharth George, Divya Kirti, Soledad Martinez Peria, Rajesh Vijayaraghavan
- Published: April 29, 2022
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400206665.001
Key findings
- Capital misallocation is identified as an important factor underpinning productivity and income gaps between advanced and emerging economies.
- The link between productivity and bank credit growth is weaker for firms with significant ties to public sector banks.
- The weaker link is especially pronounced in years when public sector banks represent a large share of new credit.
- Large flows of credit to unproductive firms constitute important missed growth opportunities for more productive firms.
Analysis and evidence
- The paper studies how well Indian banks allocate capital across firms with varying levels of productivity.
- Results highlight a differential in credit allocation tied to firm relationships with public sector banks versus other banks.
- Findings indicate that public sector bank dependence and PSB share of new credit are key factors in the observed capital misallocation.
Policy implications and recommendations
- Measures to improve governance of public sector banks would help reduce capital misallocation.
- Potential policy action includes privatization of public sector banks as one possible avenue to improve allocation efficiency.
Publication and metadata
- Authors: Siddharth George, Divya Kirti, Soledad Martinez Peria, Rajesh Vijayaraghavan
- Date: April 29, 2022
- Series: Working Paper No. 2022/073
- Issue: 073
- Volume: 2022
- Pages: 22
- DOI: https://doi.org/10.5089/9798400206665.001
- Stock No: WPIEA2022073
- ISBN: 9798400206665
- ISSN: 1018-5941
- Subjects: Bank credit; Commercial banks; Credit; Financial institutions; Money; Production; Productivity; State-owned banks
- Keywords: allocation of credit; Bank credit; bank lending; capital misallocation; Commercial banks; Credit; credit growth; Global; Productivity; PSB dependence; PSB share; public sector bank; State-owned banks
IMF Working Papers — India’s Banks: Lending to Productive Firms?
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