An impact analysis of global governance and economic indicators in shaping bank lending in India

Abstract

Purpose

The objective of the research is to examine the impact of global governance and macroeconomic indicators on the lending capacity of banks in India.

Design/methodology/approach

Employing a comprehensive time series dataset spanning from 1996 to 2022, we utilize the Nonlinear Autoregressive Distributed Lag model approach to investigate the short-run and long-run impact of government policy (GP) effectiveness, lending interest rates and remittance inflows (RI) on the lending capacity of banks in India.

Findings

The findings of the study indicate that lending interest rates have a statistically insignificant impact on lending capacity in the short term. However, in the long run, an increase in the lending interest rate leads to a decrease in lending capacity, whereas a decrease in the lending interest rate has a non-significant impact. On the other hand, the effectiveness of GPs affects both short-term and long-term lending capacity. In the short run, positive or negative changes in GP effectiveness lead to a decline in lending capacity. Whereas in the long run, a positive shock in GP effectiveness increases lending capacity, while a negative shock decreases it. Lastly, RI indicated no significant short-term impact on the lending capacity of the banks. Conversely, in the long run, a positive change in RI enhances lending capacity, whereas a negative change in RI reduces it, with a more pronounced effect.

Originality/value

The novelty of the study lies in the fact that it is a pioneering study that utilizes global governance and macroeconomic indicators to examine the impact on the lending capacity of banks and financial institutions in India. Moreover, the study adopts a non-linear approach to examine the relationship between the chosen variables, which enables an understanding of the impact of both positive and negative shocks on the dependent variable both in the short and long run. Lastly, the examination sheds light on the achievement of Sustainable Development Goal 8.10, which is related to financial inclusion and it is a major concern for a large developing nation like India.

Citation

Khan, I. and Akhtar, M.A. (2024), "An impact analysis of global governance and economic indicators in shaping bank lending in India", Benchmarking: An International Journal, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/BIJ-04-2024-0317