Impact of fintech on liquidity creation-evidence from Indian banks

Purpose This study examines the impact of Fintech adoption on bank’s liquidity creation (LC) in the Indian banking sector, specifically exploring potential differences in this relationship between public and private sector banks. Design/methodology/approach This study uses a unique dataset from the Reserve Bank of India (RBI) for 2016–2022 and constructs a novel Fintech Index through textual analysis of each bank’s annual reports. The study uses Ordinary Least Squares (OLS), fixed-effect model with Driscoll and Kraay’s standard errors and System Generalized Method of Moments (GMM) for estimation. Findings The results show that Fintech adoption significantly enhances banks’ liquidity creation, particularly through on-balance sheet activities. The findings also confirm the persistent nature of LC over time. Originality/value This study is the first to examine the relationship between Fintech and LC within the Indian banking system. It introduces an innovative approach to measuring bank-level Fintech adoption, offering valuable insights for future research and policy.