An empirical analysis of the off-balance sheet activities of Indian banks

Abstract

The paper traces the determinants of off-balance sheet activities in the Indian banking sector. Using data for the period 1996 to 2004, the paper finds that, not only regulatory factors, but also market forces, captured by banks-specific characteristics and macroeconomic conditions are at work in the diffusion pattern of OBS activities. From the regulatory standpoint, while capital adequacy is dominant in case of public sector banks, non-performing assets seem to a prime concern for foreign banks, in addition to the public sector banks. Among others, at the bank-specific level, size is an important consideration for public sector and foreign banks, while profits are a prime mover only for new private banks. Finally, the macroeconomic environment seems to have played an important role in affecting OBS diffusion, more so for public sector and new private banks.Off-balance sheet; regulatory pressure; interest spread; banking; India