Banks, Development Financial Institutions and Credit Markets in India: A Simple Model of Financial Intermediation

Saibal Ghosh

MPRA Paper from University Library of Munich, Germany

Abstract: The paper examines the interaction between a bank and a development financial institution (DFIs) in a macroeconomic set-up, both of whom can lend for working capital and investment finance purposes. Our analysis reveals that the reduction in the interest rate premium on bonds over the deposit rate is an important pre-requisite for the DFI to raise its market share in both investment finance and working capital lending. Also, greater corporate access to bond financing raises investment, output and the bond rate of interest. The policy implications of the analysis are examined

Keywords: Universal banking; investment finance; working capital lending; bond financing; interest premium (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Date: 2003-01
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Published in Indian Economic Review 1.38(2003): pp. 77-93

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