Financial Sector and Economic Growth in India
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Summary:
India’s financial sector has faced many challenges in recent decades, with a large, negative, and persistent credit to GDP gap since 2012. We examine how cyclical financial conditions affect GDP growth using a growth-at-risk (GaR) approach and analyze the link between bank balance sheets, credit growth, and long-term growth using bank-level panel regressions for both public and private banks. We find that on a cyclical basis, a negative shock to credit or a rise in macro vulnerability all shift the distribution of growth to the left, with lower expected growth and higher negative tail risks; over the long term, the results indicate that higher credit growth, arising from better capitalized banks with lower NPLs, is associated with higher GDP growth.
Series:
Working Paper No. 2022/137
Subject:
Bank credit Credit Debt financing External debt Financial institutions Financial statements Money Public financial management (PFM) State-owned banks
Frequency:
regular
English
Publication Date:
July 8, 2022
ISBN/ISSN:
9798400216404/1018-5941
Stock No:
WPIEA2022137
Pages:
30
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