Title: Frictions in transmission of interest rate cuts from central bank to commercial banks in India. An enquiry

Authors: Manish Sinha

Addresses: SCMHRD, Symbiosis International University, Pune, India

Abstract: This paper is an attempt to understand the interest rate adjustments made by the Indian commercial banks in accordance with central bank adjustments. The process followed is that of building a reaction function with respect to base rate of a bank. The findings of the study show that focusing on the base rate fixation by State Bank of India in different quarters, the base rate in the immediate past quarter, the current as well as the net interest income of the past few quarters and provisioning for loan losses in the current quarter plays a significant role in their decisions on base rate adjustments. The implications of the findings of the present study for policy makers is significant as the good health of the banking sector with minimal amount of nonperforming assets will impart the much needed flow to monetary transmission in India.

Keywords: interest rate transmission; base rate determination; frictions; net interest income; non-performing assets; liquidity; India.

DOI: 10.1504/IJMP.2019.102544

International Journal of Management Practice, 2019 Vol.12 No.4, pp.495 - 510

Received: 10 Feb 2018
Accepted: 16 Jul 2018
Published online: 30 Sep 2019 *

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