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

Sumon Bhaumik, Vinh Dang () and Ali Kutan

No wp988, William Davidson Institute Working Papers Series from William Davidson Institute at the University of Michigan

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.

Keywords: bank ownership; credit channel of monetary policy; lending; monetary policy regimes, India. (search for similar items in EconPapers)
JEL-codes: E51 E58 G21 G32 (search for similar items in EconPapers)
Pages: pages
Date: 2010-05-01
New Economics Papers: this item is included in nep-ban, nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Journal Article: Implications of bank ownership for the credit channel of monetary policy transmission: Evidence from India (2011)
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