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Incomplete reform or opportunity: the role of the banking sector in the credit transmission mechanism in India

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  • Anurag Sharma

Abstract

The recent financial crisis in developed economies is attributed to the credit crunch and features of a free market economy. One main concern is the spreading of this crisis to emerging economies. This paper tests the importance of the banking sector as a credit transmission channel in India. The empirical analysis discovers a structurally stable long-run relationship (immune to exogenous shocks) between bank credit and interest rate spread. This suggests that the reform process has not yet reached an extent where capital markets are fully competitive and banks' role in credit formation remains significant, suggesting India's reduced exposure to the current financial crisis.

Suggested Citation

  • Anurag Sharma, 2008. "Incomplete reform or opportunity: the role of the banking sector in the credit transmission mechanism in India," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 11(4), pages 273-288.
  • Handle: RePEc:taf:jpolrf:v:11:y:2008:i:4:p:273-288 DOI: 10.1080/17487870802567315
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    1. Fethi Ogunc & Gokhan Yilmaz, 2000. "Estimating The Underground Economy In Turkey," Discussion Papers 0004, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
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    3. André Sapir, 2006. "Globalization and the Reform of European Social Models," Journal of Common Market Studies, Wiley Blackwell, vol. 44(2), pages 369-390, June.
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    5. Dominik H. Enste & Friedrich Schneider, 2000. "Shadow Economies: Size, Causes, and Consequences," Journal of Economic Literature, American Economic Association, pages 77-114.
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