Abstract
In this paper, we analyses bank lending channel (BLC) of monetary policy transmission in India. We test for loan supply shifts, emanating as a direct effect of changes in the prime policy rate used by the Reserve Bank of India. Using yearly bank balance sheet data from 1996 to 2007, the paper provides evidence of an operational bank lending channel (BLC) in India. Further, segregating banks by asset size and liquidity, we find that small, illiquid banks are more affected by policy changes, and the effect is more pronounced in areas of non-priority sector lending. Finally, the domestically owned banks are more sensitive to policy rate changes vis-a-vis foreign banks.
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