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

Authors: Saumitra N. Bhaduri; Toto Goyal

Addresses: Madras School of Economics, Gandhi Mandapam Road, Chennai 600025, India ' Flipkart Internet Private Limited, #202, Mangam Elite Apartments, 19th Main, 27th Cross, HSR Layout, Sector 2, Bangalore 560102, India

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.

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.

DOI: 10.1504/IJBAAF.2015.070505

International Journal of Banking, Accounting and Finance, 2015 Vol.6 No.1, pp.1 - 20

Accepted: 04 Feb 2015
Published online: 08 Jul 2015 *

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