Implications of Bank Ownership for the Credit Channel of Monetary Policy Transmission: Evidence from India

33 Pages Posted: 22 Jul 2010

See all articles by Sumon K. Bhaumik

Sumon K. Bhaumik

Aston University - Aston Business School; Institute for the Study of Labor (IZA); University of Michigan at Ann Arbor - Stephen M. Ross School of Business, William Davidson Institute

Vinh Dang

Department of Economics and Finance, Brunel University

Ali M. Kutan

Southern Illinois University at Edwardsville

Multiple version iconThere are 2 versions of this paper

Date Written: May 26, 2010

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

JEL Classification: E51, E58, G21, G32

Suggested Citation

Bhaumik, Sumon K. and Bhaumik, Sumon K. and Dang, Vinh and Kutan, Ali M., Implications of Bank Ownership for the Credit Channel of Monetary Policy Transmission: Evidence from India (May 26, 2010). William Davidson Institute Working Paper No. 988, Available at SSRN: https://ssrn.com/abstract=1646612 or http://dx.doi.org/10.2139/ssrn.1646612

Sumon K. Bhaumik (Contact Author)

Institute for the Study of Labor (IZA) ( email )

Schaumburg-Lippe-Str. 7 / 9
Bonn, D-53072
Germany

Aston University - Aston Business School ( email )

Aston Triangle
Birmingham, West Midlands B47ET
United Kingdom

University of Michigan at Ann Arbor - Stephen M. Ross School of Business, William Davidson Institute

724 E. University Ave.
Wyly Hall
Ann Arbor, MI 48109-1234
United States

Vinh Dang

Department of Economics and Finance, Brunel University ( email )

Kingston Lane
Uxbridge, Middlesex UB8 3PH
United Kingdom

Ali M. Kutan

Southern Illinois University at Edwardsville ( email )

Department of Economics and Finance AH-3141
Edwardsville, IL 62026-1102
United States
618-650-3473 (Phone)
618-650-3047 (Fax)

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