*Professor, Amity Global Business School, Indore, India
**Chartered Accountant, Medi-caps Institute of Technology and Management, Indore, India
The purpose of the paper is to study the causality analysis (lead-lag relationship) between bank credit and economic output in Public Sector Banks and Private Sector Banks in India. The research employed the Granger Causality Test to study causality analysis between bank credit and economic output on data covering the period from 1999 to 2013. The variables used in granger causality are the credit cycle and output cycles which are extracted using Hodrick Prescott Filter from annual data of Bank Credit and Gross Domestic Product respectively. The granger causality results confirms the presence of two way causality between output cycle and credit cycle in case of public sector banks thus supporting the presence of procyclicality and risk associated with it. While in case of private sector banks, the presence of one way causality from output cycle to credit cycle is observed.
Credit Cycle, Output Cycle, Bank Credit, GDP, Procyclicality
