Evaluating the Relationship Between Banking Credit and Total Deposits in the Context of National Highway Development in India

Abstract

National Highways (NHs) are key facilitators of sustainable growth and development. NHs have a multiplier effect on overall growth, industrialization and urbanization. A key challenge is that the investment that manifests, in terms of savings, deposits and bank credit, is highly endogenous. In such a scenario, a pertinent question arises: Do NHs have an impact or a mirror effect on bank credit? We skirt the problem by investigating the impact of the NH on bank credit. We study this research question by using NHs, examining the growth of banks in the treatment districts (districts within 10 km of an NH) and the control districts (districts beyond 50 km of an NH). We adopted panel regression with fixed effects and long difference estimation to analyse the research problem. The results from the districts that are within 10 km of an NH have a positive association with bank credit and aggregate deposits. This fosters the belief that bank credit and aggregate deposits respond to the development of infrastructural projects such as NHs. In conclusion, the study investigates an empirical association between the construction of NHs during the period between 2014 and 2022 and the local financial sector. Our results are helpful for policymakers and the National Highway Authority of India in evaluating the impact of infrastructural investment on access to banks in the context of an emerging economy. Our results indicate that an NH has a positive impact on the financial sector, but there is still a long road ahead.