Future Business Journal (Jun 2023)

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

  • Zeeshan Nezami Ansari,
  • Muzffar Hussain Dar,
  • Shadman Zafar

DOI
https://doi.org/10.1186/s43093-023-00203-6
Journal volume & issue
Vol. 9, no. 1
pp. 1 – 10

Abstract

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Abstract 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.

Keywords