Journal Press India^®

Author Details ( * ) denotes Corresponding author

This paper examines the role of demand and sup ply-side factors that can influence the cross-border trade credit availed by Indian importers from domestic and foreign banks. Using a panel data of 55 banks for period 2007-08:Q1 to 2017-18:Q4, the paper finds that the size of imports – being a demand-side factor –positively influences the flow of trade credit. Among the supply-side factors, banks’ financial health, size of their overseas network as well as funding cost in the international market are important. In light of the empirical findings, the paper suggests that domestic banks need to expand their overseas network and shift towards the use of globally accepted trade finance instruments instead of indigenous instruments, which, however, may push up the cost.

Keywords

Trade finance; Indian banks; Imports; Panel data.

1. Alexander, D. K., Tan, K. C., Adnan, G., & Lambert J. F (2011). Private bankers’ response to the crisis: Warnings about changes to basel regulatory treatment of trade finance. In Chauffour, J. P & Malouche, M. (Eds.), Trade finance during the great trade collapse (pp.173-198). Washington D.C, U.S.: World Bank.
2. Amiti, M., & Weinstein, D. (2012). How much do bank shocks affect investment? Evidence from matched bank-firm loan data, Working Paper Series No. 310, Columbia Business School, December 2012.
3. Asian Development Bank (2017). 2017 Trade finance gaps, growth, and jobs survey, ADB Brief No. 83. Retrived from https://www.adb.org/sites/default/files/ publication/359631/adb-briefs-83.pdf.
4. Asmundson, I., Dorsey, T., Khachatryan, A., Niculcea, I., & Saito, M. (2011). Trade and trade finance in the 2008-09 financial crisis, IMF Working Paper WP/11/16.
5. Auboin, M. (2009). Restoring trade finance during a period of financial crisis: Stock-taking of recent initiatives, Staff. World Trade Organization.Working Paper ERSD-2009-16.
6. Avdjiev, S., Zsolt, K., & Előd, T. (2012, December 10). The euro area crisis and cross-border bank lending to emerging markets. BIS Quarterly Review, December.
7. Bank for International Settlements (2014). Trade finance: Developments and issues CGFS Papers No 50.
8. Behrens, K., Gregory, C. & Giordano, M. (2011). Trade crisis? What trade crisis?, CEPR Discussion Paper No. 7956, CEPR London.
9. Briault, C., Erik, F., Mazo, I.G.D., Yee, B.K.C., Rademacher, J., & Skamnelos, I. (2018). Cross-Border Spill over Effects of the G20 Financial Regulatory Reforms Results from a Pilot Survey, World Bank Policy Research Working Paper No. 8300 (January).
10. Calomiris, C., Himmelberg, C., & Wachtel, P. (1995). Commercial paper, corporate finance, and the business cycle: A microeconomic perspective. Carnegie-Rochester Series on Public Policy, 42(June 1995), 203-250.
11. Chauffour, J. P. & Malouche, M. (2011). Trade finance during the great trade collapse, Washington, US: World Bank.
12. Choi, W. G. & Kim, Y. (2005). Trade credit and the effect of macro-financial shocks: Evidence from U.S. panel data. Journal of Financial and Quantitative Analysis, 40(4), 897–925.
13. Committee on the Global Financial System, (2014). Trade finance: Developments and issues. CGFS Papers No 50, January 2014, BIS.
14. Coulibaly, B., Horacio, S., & Zlate, A. (2011). Trade credit and international trade during the 2008-09 global financial crisis, International Finance Discussion Papers No.1020, Board of Governors of the Federal Reserve System.
15. Driscoll, J. C., & Kraay, A. C. (1998). Consistent covariance matrix estimation with spatially dependent panel data. Review of Economics and Statistics, 80(4), 549–560.
16. Eck, K. & Schnitzer, M. (2012). How Trade Credits Foster International Trade, University of Munich, CEPR Discussion Paper No. DP8954. Retrived from https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2066327#
17. Engemann, M., Eck, K., & Schnitzer, M. (2011). Trade credits and bank credits in international trade: Substitutes or Complements?, BGPE Discussion Paper no. 108.
18. Erbenová, M., Liu, Y., Kyriakos-Saad, N., Mejía, A. L., Gasha, G., Mathias, E., Norat, M., Fernando. F., & Almeida, Y. (2016). The withdrawal of correspondent banking relationships: A case for policy action, IMF Staff Discussion Note, SDN/16/06, July.
19. Garralda, J. M. S., & Vasishtha, G. (2015). What drives bank-intermediated trade finance? Evidence from cross-country analysis, Bank of Canada Working Paper No.2015-8.
20. Hallaert, J. J. (2011). Why boosting the availability of trade finance became a priority during the 2008–09 crisis. In Ch auffour, J. P. & Malouche, M. (Eds.), Trade finance during the great trade collapse (pp.117-132). Washington, D.C: World Bank.
21. Hibiki, I. & Lambert, F. (2016). Post-crisis international banking: An analysis with new regulatory survey data, IMF Working Paper No. 16/88.
22. Iacovone, L., & Zavacka, V. (2009). Banking crisis and exports-lessons from the past, Policy Research Working Paper 5016, World Bank, August 2009.
23. Institute of International Finance (2017). Basel capital reforms: Impact on emerging markets, Retrived from /Publications/ID/94/Basel-Capital-Reforms--Impact-on-Emerging-Markets, January 2017.
24. International Chamber of Commerce (2015). 2015: Rethinking trade & finance, ICC Global Survey on Trade Finance (September).
25. International Chamber of Commerce (2016). 2016: Rethinking trade & finance, ICC Global Survey on Trade Finance (October).
26. International Monetary Fund (2003, December 9). Trade finance in financial crises: Assessment of key issues, IMF Policy Paper.
27. Ivashina, V., Scharfstein D. S., & Stein, J. C. (2015). Dollar funding and the lending behavior of global banks. Quarterly Journal of Economics, 130(3), 1241-1281.
28. Klapper, L. Laeven, L., & Rajan, R. (2012). trade credit contracts, review of financial studies, Society for Financial Studies, 25(3), 838-867.
29. Levchenko, A. A., Logan T. L., & Tesar, L. L. (2010). The collapse of international trade during the 2008-2009 crisis: In search of the smoking gun, NBER Working Paper no. 16006.
30. Love, I., Preve, L. A., & Sartia-Allende, V. (2007). Trade credit and bank credit: Evidence from recent financial crises. Journal of Financial Economics, 83(2), 453–469.
31. Malouche, M. (2011). World Bank firm and bank surveys in 14 developing countries, 2009 and 2010 In Chauffour, J.P. & Malouche,  M. (Eds.), Trade finance during the great trade collapse (pp. 173-198). Washington, US: World Bank.
32. Mora, J., & Powers, W. (2011). Global perspectives in the decline of trade finance. In Chauffour, J. P & Malouche,  M. (Eds.), Trade finance during the great trade collapse (pp. 117-132). Washington, US: World Bank.
33. Niepmann, F., & Eisenlohr, T. S. (2013). No guarantees, No trade: How banks affect export patterns, Staff Report 659, Federal Reserve Bank of New York 2013.
34. Paravisini, D., Rappoport, V., Schnabl, P., & Wolfenzon, D. (2011). Dissecting the effect of credit supply on trade: Evidence from matched credit-export data, NBER Working Paper no. 16975.           
35. Starnes, S. K., Michael, K., & Alexander, A. J. (2016). De-risking by banks in emerging markets – effects and responses for trade,  EMCompass Note 24, International Financial Corporation (World Bank Group).
36. United Nations Conference on Trade and Development (2018). UNCTAD-Eora Global Value Chain Database, Geneva (Switzerland).