Disbursement of Credit in Private Sector Banks in India A Panel Data Analysis

Abstract

The proportion of credit facility extended by banks of any country is influential for economic growth and development. This paper has attempted to analyse the impact of significant macro and microeconomic variables on the proportion of credit disbursement granted by public sector banks in India during 2011-2019. In the study credit as percentage to total assets, which reflects the credit facilities available to the economy, has been taken as dependent variable. The set of explanatory variables like deposit ratio, liquidity ratio, bank size, growth rate, deposit rate and capital adequacy ratio is going to have a positive relation with credit facilities. On the contrary, inflation rate, the reserve ratio and capital ratio are expected to be inversely connected with the proportion of credit disbursement. It is expected that deposit rate is likely to increase credit facilities whereas NPA ratio will adversely affect the credit disbursement. It has been found that deposit ratio, capital ratio, nonperforming loan ratio, bank size, reserve ratio, and capital adequacy ratio emerge significantly to expand the disbursement of credit by the private sector banks. It is also noted that liquidity ratio, average annual interest rate on loan and deposit have no significant impact on credit facility. In contrast it has been observed that almost all the banks have less capacity to provide Loans & advances in comparison to Axis Bank. And all banks are statistically insignificant except Jammu & Kashmir Bank which is highly significant at 5% level of significance.