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Determinants of Cross-border Trade Credit in India: Evidence from Bank-level Panel Data

Vol 7 , Issue 2 , July - December 2020 | Pages: 91-116 | Research Paper  

 
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https://doi.org/10.17492/jpi.focus.v7i2.722005


Author Details ( * ) denotes Corresponding author

1. Rajeev Jain, Director, Department of Economic and Policy Research, Reserve Bank of India, Mumbai, Maharashtra, India (rajeevjain@rbi.org.in)
2. Dhirendra Gajbhiye, Director, Department of Economic and Policy Research, Reserve Bank of India, Mumbai, Maharashtra, India (dgajbhiye@rbi.org.in)
3. * Soumasree Tewari, Assistant Adviser, Department of Economic and Policy Research, Reserve Bank of India, Mumbai, Maharashtra, India (soumasreetewari@rbi.org.in)

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.

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