Abstract
Purpose The study aims to identify the impact of monetary policy tools on the performance of banks in India, and this could be an excellent suggestion to the regulators in framing the favourable interest rates which would meet the macroeconomic objectives of the Indian economy. Design/methodology/approach The design adopted in this study is descriptive and analytical research. Correlation and regression analysis is used to determine the relationship between bank rate (BR) and the performance of public sector banks in India. The sample chosen for this study is the public sector banks actively performing in India. Findings The performance is measured by taking three factors, and they are deposits, loans and advances (L&A) and total asset value of the banks. All three factors have shown an impact of BR on them during the five years. L&A affected the least amongst the three factors, but the other two were significantly impacted by the change in BR by the Reserve Bank of India. So, there should be a favourable fluctuation in the BR which will bring flexibility in the banking system, and they can perform well in the economy and the central bank also can concentrate on the macro-economic situation in the country. Originality/value This paper helps in giving suggestions to the Central bank, researchers, financial institutions to look into the financial performance and monetary policy rates and the central bank also can concentrate on the macro-economic situation in the country.
Highlights
The contribution of financial sector reforms towards economic growth and development is tremendous
This study is made to identify the impact of monetary policy tools on the performance of banks in India, and this could be an excellent suggestion to the regulators in framing the favourable interest rates which would meet the macroeconomic objectives of the Indian economy
Significance of the study The study highlights the impact of the monetary policy rate (BR) on the financial performance of public sector banks in India, which helps the banks to decide about the credit facilities to be given further
Summary
The contribution of financial sector reforms towards economic growth and development is tremendous. The quantitative tools decided by the monetary policy are implemented on commercial banks to regulate the money supply and price. Expansionary monetary policy helps in supplying the money to the economy by reducing the interest rates when there is less liquidity. It is used during a time of recession. Contractionary monetary policy helps in reducing the excess liquidity and inflation in the economy by increasing interest rates so that the money supply will become limited and automatically the inflation comes down. This study is made to identify the impact of monetary policy tools on the performance of banks in India, and this could be an excellent suggestion to the regulators in framing the favourable interest rates which would meet the macroeconomic objectives of the Indian economy
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