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

  • Saumitra, Bhaduri
  • Toto, Goyal

This study analyzes the monetary policy transmission in India with the help of bank lending channel hypothesis. We test the shift in loan supply emanating from the 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 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.

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File URL: https://mpra.ub.uni-muenchen.de/37997/1/MPRA_paper_37997.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 37997.

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Date of creation: 10 Apr 2012
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Handle: RePEc:pra:mprapa:37997
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  1. Westerlund, Joakim, 2003. "A Panel Data Test of the Bank Lending Channel in Sweden," Working Papers 2003:16, Lund University, Department of Economics.
  2. Bernanke, Ben & Gertler, Mark, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," Working Papers 95-15, C.V. Starr Center for Applied Economics, New York University.
  3. Blundell, R. & Bond, S., 1995. "Initial Conditions and Moment Restrictions in Dynamic Panel Data Models," Economics Papers 104, Economics Group, Nuffield College, University of Oxford.
  4. M Arellano & O Bover, 1990. "Another Look at the Instrumental Variable Estimation of Error-Components Models," CEP Discussion Papers dp0007, Centre for Economic Performance, LSE.
  5. Cetorelli, Nicola & Goldberg, Linda S., 2008. "Banking globalization, monetary transmission and the lending channel," Discussion Paper Series 1: Economic Studies 2008,21, Deutsche Bundesbank, Research Centre.
  6. Ben S. Bernanke & Alan S. Blinder, 1989. "The federal funds rate and the channels of monetary transmission," Working Papers 89-10, Federal Reserve Bank of Philadelphia.
  7. Bernanke, Ben S & Blinder, Alan S, 1988. "Credit, Money, and Aggregate Demand," American Economic Review, American Economic Association, vol. 78(2), pages 435-39, May.
  8. Michael Ehrmann & Leonardo Gambacorta & Jorge Mart�nez-Pag�s & Patrick Sevestre & Andreas Worms, 2001. "Fynancial Systems and the Role of Banks in Monetary Policy Transmission in the Euro area," Temi di discussione (Economic working papers) 432, Bank of Italy, Economic Research and International Relations Area.
  9. Jeremy C. Stein & Anil K. Kashyap, 2000. "What Do a Million Observations on Banks Say about the Transmission of Monetary Policy?," American Economic Review, American Economic Association, vol. 90(3), pages 407-428, June.
  10. Bruce E. Hansen, 2000. "Sample Splitting and Threshold Estimation," Econometrica, Econometric Society, vol. 68(3), pages 575-604, May.
  11. Kishan, Ruby P & Opiela, Timothy P, 2000. "Bank Size, Bank Capital, and the Bank Lending Channel," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(1), pages 121-41, February.
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