Financial Repression, Deposit Rate Deregulation, and Bank Market Power

Yogeshwar Bharat, Subhadeep Halder and Nirupama Kulkarni
Additional contact information
Subhadeep Halder: NYU Abu Dhabi

Working Papers from Centre for Advanced Financial Research and Learning (CAFRAL)

Abstract: Mandating low deposit rates, a form of financial repression, allows banks to raise deposits cheaply and makes investment in government securities profitable but limits credit access. Using regulatory data, we exploit India’s 2011 deregulation of savings deposit rates to show that deposit rates increase after deregulation, more so for banks with low market power; consequently, deposits increase, and deposit maturity contracts. These banks shift from low-yielding government securities to loans, and loan maturity shortens. Credit to households and firms increases. A structural model demonstrates that high-market power banks restrain deposit growth. Deregulation improves financial intermediation, but market power limits gains.

Keywords: Financial repression; deposit franchise; banking; market power (search for similar items in EconPapers)
JEL-codes: D43 E51 E58 G21 G28 O53 (search for similar items in EconPapers)
Pages: 84
Date: 2025-05
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.cafral.org.in/sfControl/content/Speech ... ript_26May%20(1).pdf

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ris:cafral:022267

Access Statistics for this paper

More papers in Working Papers from Centre for Advanced Financial Research and Learning (CAFRAL) Contact information at EDIRC.
Bibliographic data for series maintained by Anup B. Sonawane ().