Bank lending channel of monetary policy transmission: India and the global financial crisis

Abstract

This paper examines the role of bank lending channel of monetary policy in India during the global financial crisis, especially following the collapse of Lehman Brothers in late 2008. Contrary to popular perceptions, and in contrast to the USA, this paper shows that following the Reserve Bank of India's aggressive monetary easing measures, bank credit growth in India maintained robust growth even in the midst of severe global financial crisis. However, there is a clear distinction between the private and public sector bank's lending behaviour. The crisis has clearly shown that banks will remain an important channel of monetary transmission in India.