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Role of Banks in Promoting Risky Financial Assets
Based on national-level cross-sectional household data from the India Human Development Survey in 2011–12, this study examines the role of bank branch availability in influencing household investment in risky financial assets. Using propensity score matching to address sample selection bias, we find that the presence of a bank branch within a reachable distance of 5 kilometres has a significantly positive effect on household investment in risky financial assets. Specifically, for every 1,000 households, two households would have invested in risky assets if a bank branch is available within this range. The results are consistent even when using alternative matching algorithms. Additionally, a higher effect is observed for bank fixed deposits, a relatively more secured asset class.
The financial system plays a crucial role in a country’s economic development, facilitating the flow of savings toward investment opportunities. Various intermediaries, including banks, stock exchanges, post offices, and government institutions contribute to this process. Among them, commercial banks stand out with their extensive network of branches (Angadi 2003). Previous studies have examined the role of commercial banks in economic growth (Young 2017), poverty reduction (Burgess and Pande 2005), and women’s empowerment (Wijesiri et al 2019). However, their effect on promoting investment,1 specifically in risky financial assets, has been relatively understudied (Erturk and Solari 2007).
Economists and policymakers have devoted considerable attention to the study of household investment in risky financial assets. However, the predominant focus has revolved around elucidating the factors that influence demand, such as wealth, biological characteristics, background risk, demographics, and environmental factors.2 Nevertheless, a growing body of research has started to delve into the impact of technology on household participation in this realm.
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