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

Many developing and emerging markets have high degrees of state bank ownership. In addition, therecent global financial crisis has led to significant state ownership of banking assets in developedcountries such as the United Kingdom. These observations beg the question of whether theeffectiveness of monetary policy through a lending channel differs across banks with differentownerships. In this paper, using bank-level data from India, we examine this issue and also testwhether the reaction of different types of banks (i.e., private, state and foreign) to monetary policychanges is different in easy and tight policy regimes. Our results suggest that there are considerabledifferences in the reactions of different types of banks to monetary policy initiatives of the centralbank and the bank lending channel of monetary policy might be much more effective in a tight moneyperiod than in an easy money period. We also find differences in impact of monetary policy changeson less risky short term and more risky medium term lending We discuss the policy implications of thefindings. Our results from India are preliminary and further studies are needed to see whether ourfindings can be generalized to emerging economies or developing countries in general....