This study investigates the interrelationship between bank capital and liquidity creation in the Indian banking sector. The sample considers 68 commercial banks (public, private and foreign banks) operating in India during the period from 1996–1997 to 2013–2014. We employ the generalised method of moments technique in a Granger causality framework and find a bidirectional relationship between bank capital and liquidity creation for the entire sample. Our results support the financial fragility–crowding-out hypothesis, which suggests that Indian banks follow a fragile financial structure to maximise liquidity creation and increase their capital ratio by crowding out deposits to limit liquidity creation. Our results also support the liquidity substitution hypothesis, which suggests that stable liabilities can be substituted for bank capital, while facing more risk. We find similar results with the whole sample regardless of ownership, size, capitalisation and periods. These findings have implications for bank managers and policymakers on formulating appropriate policy for capital and liquidity creation of commercial banks in India.

JEL Codes: G20, G21, G33

这项研究调查了印度银行业银行资本与流动性创造之间的相互关系。该样本考虑了1996年至1997年至2013年至2014年期间在印度运营的68家商业银行（公共，私人和外国银行）。我们在Granger因果关系框架中采用了广义矩技术，并发现整个样本的银行资本与流动性创造之间存在双向关系。我们的研究结果支持了金融脆弱性-挤空假说，该假说表明印度银行遵循脆弱的金融结构，以通过挤出存款以限制流动性创造来最大化流动性创造并提高资本比率。我们的结果也支持流动性替代假设，该假设表明可以用稳定的负债代替银行资本，同时面临更多风险。无论所有权，规模，大小写和期限如何，我们在整个样本中都能找到相似的结果。这些发现对银行管理者和决策者制定针对印度商业银行资本和流动性创造适当政策的意义。

JEL代码： G20，G21，G33