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

Abstract

This paper examines the role of demand and supply-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.