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Does bank competition affect the transmission mechanism of monetary policy through bank lending channel? Evidence from India

Bijoy Rakshit and Samaresh Bardhan

Journal of Asian Economics, 2023, vol. 86, issue C

Abstract: This paper empirically investigates how intensified competition in the Indian banking affects the transmission of monetary policy through bank lending channel over the period 1997–2017. Additionally, this study examines the impact of deposit and loan market channels on bank’s credit growth. Results obtained through two-step system-GMM reveal that a higher degree of market power weakens the monetary policy transmission mechanism for the entire banking industry and across ownerships. Results show that higher market power in the deposit and loan markets weakens the impact of monetary policy on bank loan supply. The findings of this study extend important policy measures that can strengthen the transmission mechanism of monetary policy by reducing the adverse effects of changes in bank competition.

Keywords: Bank competition; Monetary policy transmission, Bank lending channel, India (search for similar items in EconPapers)
JEL-codes: D41 E5 G2 L12 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:asieco:v:86:y:2023:i:c:s1049007823000155

DOI: 10.1016/j.asieco.2023.101595

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