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The bank lending channel of monetary policy transmission: evidence from an emerging market, India

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  • Saumitra N. Bhaduri
  • Toto Goyal

Abstract

In this paper, we analyses bank lending channel (BLC) of monetary policy transmission in India. We test for loan supply shifts, emanating as a direct effect of changes in the prime policy rate used by the Reserve Bank of India. Using yearly bank balance sheet data from 1996 to 2007, the paper provides evidence of an operational bank lending channel (BLC) in India. Further, segregating banks by asset size and liquidity, we find that small, illiquid banks are more affected by policy changes, and the effect is more pronounced in areas of non-priority sector lending. Finally, the domestically owned banks are more sensitive to policy rate changes vis-à-vis foreign banks.

Suggested Citation

  • Saumitra N. Bhaduri & Toto Goyal, 2015. "The bank lending channel of monetary policy transmission: evidence from an emerging market, India," International Journal of Banking, Accounting and Finance, Inderscience Enterprises Ltd, vol. 6(1), pages 1-20.
    • Handle: RePEc:ids:injbaf:v:6:y:2015:i:1:p:1-20
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    Cited by:

    1. Sanjukta Sarkar & Rudra Sensarma, 2019. "Risk-taking Channel of Monetary Policy: Evidence from Indian Banking," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 13(1), pages 1-20, February.
    2. Sarkar Sanjukta & Sensarma Rudra, 2017. "Risk Taking Channel of Monetary Policy: A Review of the Evidence and Some Preliminary Results for India," Working papers 250, Indian Institute of Management Kozhikode.
    3. Fazelina Sahul Hamid & Norhanishah Mohd Yunus, 2020. "Bank-Lending Channel of Monetary Policy Transmission: Evidence from ASEAN," Global Business Review, International Management Institute, vol. 21(4), pages 892-905, August.
    4. Sasidaran Gopalan & Ramikishen S. Rajan, 2015. "Does Foreign Bank Entry Affect Monetary Policy Effectiveness?: Exploring the Interest Rate Pass-Through Channel," HKUST IEMS Working Paper Series 2015-06, HKUST Institute for Emerging Market Studies, revised Feb 2015.

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    More about this item

    Keywords

    bank lending channels; BLC; monetary policy transmission; emerging markets; India; banking industry; loan supply shifts; prime policy rate; bank balance sheets; asset size; liquidity.;
    All these keywords.

    JEL classification:

    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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