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Implications of bank ownership for the credit channel of monetary policy transmission: Evidence from India

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  • Sumon Kumar Bhaumik

    ()

  • Vinh Dang

    ()

  • Ali M. Kutan

    ()

Abstract

Many developing and emerging markets have high degrees of state bank ownership. In addition, the recent global financial crisis has led to significant state ownership of banking assets in developed countries such as the United Kingdom. These observations beg the question of whether the effectiveness of monetary policy through a lending channel differs across banks with different ownerships. In this paper, using bank-level data from India, we examine this issue and also test whether the reaction of different types of banks (i.e., private, state and foreign) to monetary policy changes is different in easy and tight policy regimes. Our results suggest that there are considerable differences in the reactions of different types of banks to monetary policy initiatives of the central bank and the bank lending channel of monetary policy might be much more effective in a tight money period than in an easy money period. We also find differences in impact of monetary policy changes on less risky short term and more risky medium term lending We discuss the policy implications of the findings. Our results from India are preliminary and further studies are needed to see whether our findings can be generalized to emerging economies or developing countries in general.

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Bibliographic Info

Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number wp988.

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Length: pages
Date of creation: May 2010
Date of revision:
Handle: RePEc:wdi:papers:2010-988

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Keywords: bank ownership; credit channel of monetary policy; lending; monetary policy regimes; India.;

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Cited by:
  1. Hou, Xiaohui & Wang, Qing, 2013. "Implications of banking marketization for the lending channel of monetary policy transmission: Evidence from China," Journal of Macroeconomics, Elsevier, vol. 38(PB), pages 442-451.
  2. Macit, Fatih, 2012. "Who responds more to monetary policy, conventional banks or participation banks?," Journal of Economics, Finance and Administrative Science, Universidad ESAN, vol. 17(33), pages 10-14.
  3. Perera, Anil & Ralston, Deborah & Wickramanayake, J., 2014. "Impact of off-balance sheet banking on the bank lending channel of monetary transmission: Evidence from South Asia," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 29(C), pages 195-216.

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