Reserve Bank Research Articles

How monetary policy affects industrial activity in Malawi: Evidence from ARDL and VAR models

In this paper, the impact of monetary policy on industrial production is investigated for Malawi. Using the ARDL bounds testing approach, and VAR models, it is shown that tight monetary conditions negatively affect industrial production both in the short run and in the long run. This is the case whether the central bank’s policy rate or reserve money is used as the policy tool. The study further establishes the interest rate channel, and money supply channel as the main mechanisms through which this effect of monetary policy is transmitted to industrial production. Given these results, a recommendation is made that the Reserve Bank of Malawi should refrain from prolonged use of tight monetary policy in their quest to achieve stability of prices as this stifles growth of the industrial sector. Rather monetary policy should be used as a temporary stabilization tool when faced with temporary shocks to the bank’s policy objectives.

The interpretation of CBDC within an endogenous money framework

Central bank digital currency (CBDC) has increasingly received attention among policymakers and academics. From a theoretical perspective, the introduction of a CBDC arouses long-standing questions, foreseeing the possibility for the private (non-financial) sector to access the central bank reserves. The aim of this paper is to strengthen the understanding of the CBDC through the Endogenous Money Theory (EMT). The paper examines the balance sheets of the central bank, commercial banks, and the non-financial private system, tracking all the assets and liabilities of the macro-agents involved in the introduction of a CBDC. It explains the logical chain of relationships starting with the creation of bank loans from commercial banks, transformed into deposits, and ultimately converted into CBDC. Such a chain of relationships is also explained by amending the four quadrants model proposed by many post-Keynesian scholars.

RECOVERY ASPECTS OF BANK ADVANCES IN INDIA:A LEGAL ANALYSIS

Banking is a business which trades in money. The prime objectives of Banks are to receive deposits and use those deposits efficiently so as to make money. In the present era, almost every person and most of the companies approaches the Banks for the loan and advances. The purpose of taking loan and advances differs from individual to individual and from institutions to institutions. Some needs it for personal purpose; some may take for business purpose and many other reasons. The Bank and Financial Institutions (FIs) are an establishment which makes such advances to the Individual and company whenever they require. Also, the major portion of the Bank Funds is employed by way of loans and advances, which provides profit to the banks and the most profitable sector for banks. Banks grant such advances mainly through the Secured Loans, Term Loans, Unsecured Loans, Working Capital Finance, Cash Credit, Overdraft and discounting of commercial bills as per the needs of Customer and for different purposes by considering the lending norms of the Reserve Bank of India (RBI) and certain restrictions given under section (u/s) 20,20A, 21, 21-A of the Banking Regulations Act, 1949. Even, though banks can lend money without the security but generally, banks demand for security for the repayment of advances and such Securities are in the form of fixed assets, receivables etc. accepted by the banks for sanctioning the loans. As per the reports, the Scheduled Commercial Banks (SCBs) has lent Rs. 70554.77 crores against the total deposits of the Rs.92182.73 crores as on January, 2016

Engineering and Advancement of Digitization through Unified Payment Interface

Unified Payment Interface introduced in 2016 is an instant real-time payment system developed by National Payments Corporation of India facilitating inter-bank transactions. The interface is regulated by the Reserve Bank of India and works by instantly transferring funds between two bank accounts on a mobile platform. Unlike wallets, the payer and the payee can use two different payment service providers. Unified Payment Interface has brought revolution in payment system in India, making instant real-time payment system possible. This study is focused on looking at engineering side of Unified Payment Interface and its impact around advancement of digitization. Here we see behind Unified Payment Interface engineering infrastructure and how it works. This study also elaborates on surgencies of digitization through Unified Payment Interface mode in India. Study was carried out by taking survey, using Right to Information Act, and understanding computing side of Unified Payment Interface. In survey 214 individuals were asked 20 questions irrespective of age, location, sex, income background, education and religion in India. Findings were listed with both positives and negative aspects highlighted.

Impact of cash reserve ratio on banks profitability: A study on conventional commercial banks in Bangladesh

This paper analyzes how banks profitability responds to fluctuations in cash reserve ratio in Bangladesh. Basically, it’s purpose is to examine the effects of Bangladesh Bank practices of employing cash reserve ratio on banking intermediation activities and as a result its profitability, particularly in conventional commercial banking sector. Coefficient of Correlation is used to find out the relation between cash reserve ratio and banks profitability while t-test is utilized for testing hypothesis. Quantitative time series data for 5 years’ time period of 2017-2021 was collected for the study. The researcher selects ten leading conventional commercial Bank as sample. This study highlights the consequences of movement in CRR on banks profitability by using secondary data. The finding of the study is that CRR has negative relation with banks profitability where Return on Assets (ROA) and Return on Equity (ROE) is studied as profitability indicator. It can be concluded that movement in CRR keep inverse impact on conventional commercial banks profitability in the long run by influencing the banks intermediary work. This paper helps the banks to stand strongly and strategically at the time of tight monetary policy when CRR rate increases by informing the inverse impact of this monetary tool.

Research of the development of Green Central Bank Digital Currency, CBDC

The idea of a green central bank digital currency (CBDC) has been mentioned by some institutions such as the Congress of the United States and private companies, but it has not been explained. It is intuitive that this concept refers to a way of issuing or using CBDCs by taking the environment into con- sideration. In this research, it is explored a way that this could work by limiting the CBDC issuance to the total renewable energy production. The paper shows a list of the 40 countries that produce the most renewable energy and compares it with a well-established economic standard, the Total Reserves of Central Banks. For 2018, it was found a correlation among the percentage of the total energy that is produced with green sources and the percentage that could be backed by international reserves if it were the same thing. This correlation is presented as a pa- tron that can be use by Central Banks in order to take environment in to consideration and to calculate how much of a CBDC can be issued by central banks as a standard.

Impact of COVID-19 on the Income of Entrepreneurs Who Borrowed from SHG

The COVID-19 pandemic has shaken the world. After liberalization in 1991, microfinance became a panacea for poor people without collateral and information asymmetry. The higher cost of microfinance and debt traps highlighted the need for the state to intervene in resource redistribution. In addition, national lockdowns and COVID-19 restrictions have made it difficult for emerging economies like India to achieve this sustainable development goal. The Reserve Bank of India introduced self-help group (SHG) bank linkage to ensure the financial inclusion of the poor. The difference-in-difference method examined how SHGs affect entrepreneur households’ income. CMIE Consumer Pyramid dx data were used for analysis. The data establish that SHGs have increased the income of the households, and demographic factors such as education, income level and gender also impact the financial inclusion of the poor.

NEXUS BETWEEN OIL PRICE, EXCHANGE RATE, FISCAL DEFICIT, FINANCIAL DEVELOPMENT AND INFLATION: EVIDENCE FROM INDIA

The economies of developing countries are more affected by high inflation rate which disrupts the consumption, investment and production activities as well as their economic growth and in turn brings macroeconomic instability. This study investigates the impact of oil price, exchange rate, gross fiscal deficit and financial development on the inflation rate in India. The multiple regression model has been employed to analyse the secondary data (1980 to 2020) collected from the web portal of the World Bank and Reserve Bank of India. The result shows that the impact of the exchange rate fluctuation is considerably more realised in this study when compared to other independent factors. So import reduction and maintaining adequate foreign exchange reserves can bring stability in the exchange rate in India. Moreover, policymakers may concentrate on minimising crude oil consumption and promoting the use of renewable energy to protect the domestic economy from changes in oil price fluctuation in the global market. In addition to these suitable monetary as well as fiscal policies are inevitable to reduce the inflationary pressure in Indian economy.

Post-mortem analysis of dirty dozen companies referred by Reserve Bank of India to insolvency and bankruptcy code

Post-mortem analysis of dirty dozen companies referred by Reserve Bank of India to insolvency and bankruptcy code

Financial Performance Analysis using CAMEL Model with Special Reference to Listed Small Finance Banks in India

Banking sector plays a vital role for the development of Indian economy. Over the past few years banking industry has gone through many changes. Small Finance Banks are recent banking initiative of Reserve Bank of India towards promotion of financial inclusion in India. The small finance banks in India play a prominent role as these banks provide services to the financially unincluded population. These banks provide basic services to the small-scale farmers and micro and small-scale industries. These banks will help in boosting the economy of the country as they provide services to major population of the country. The study is related to a period of five years from financial year 2017-2018 to 2021-2022. The study contains an assessment of the performance of SFBs using CAMEL Model. The analysis helped to measures the performance of banks from each of the important parameter like Capital Adequacy, Assets Quality, Management Efficiency, Earning Quality and Liquidity.

Daily monetary policy reactions to the pandemic: The Australian case

In contrast to the more typical monthly series, Reserve Bank of Australia data offer a high frequency window into central bank actions following the onset of the pandemic. Daily observations demonstrate not only the absolute size of the Reserve Bank’s open market purchases but also a dramatic increase in the conditional variance identified under GARCH estimation. Regression analysis and impulse response functions reveal significant monetary policy responses to government support measures and exchange rate movements against the US dollar. Notwithstanding its overall highly expansionary monetary policy, the Reserve Bank appears to have tempered the pace of its open market purchases when either the government policy response intensified or currency depreciation increased.

Monetary Policy Implications of Central Bank Digital Currencies: Perspectives on Jurisdictions with Conventional and Islamic Banking Systems

Central bank digital currencies (CBDCs) promise many benefits but, if not well designed, they could have undesired consequences, including for monetary policy. Issuing an unremunerated CBDC or a wholesale CBDC does not change the objectives of monetary policy or the operational framework for monetary policy. CBDCs can, however, induce changes in the retail, wholesale and cross border payments that have negative spillover effects on monetary policy, through their effects on money velocity, bank deposit disintermediation, volatility of bank reserves, currency substitution, and capital flows. Countries most vulnerable are those with banking systems dominated by small retail deposits and demand deposits, low levels of digital payments and weak macro fundamentals. Proposed CBDC design features, such as caps on CBDC holdings and unremunerating the CBDC can moderate disintermediation risks, but they are not sufficient. Central banks will need to ensure that unintended macroeconomic risks are comprehensively identified and mitigated.

DEMYSTIFYING THE MISERY BEHIND LOAN APPS IN INDIA

Digital lending contributed to meeting the financial needs of people who had otherwise faced many difficulties in getting the required money in a very short period of time. All that comes with ease cannot be presumed to have a happy ending. Loan apps increased and created havoc. In the wake of many undesirable situations leading to the suicidal deaths of people who have fallen prey to unscrupulous lending through loan apps, this paper tries to bring into light the digital loan apps and their features, the factors responsible for unscrupulous digital lending, the mechanism adopted by loan apps operators to cheat and harass the borrowers, and finally studies the intervention by the regulatory bodies. The loan app operators leveraged the gaps in the regulatory system to override their business coupled with the dire need of people to raise easy finance via loan apps. This paper aims to explore the RBI (Reserve Bank of India), the regulatory body for the supervision and control of the banking system of India, guidelines on digital lending, and provide precautions to whosoever wants to avail finance through digital loans. The data is collected from the report published by the RBI and various articles from the electronic media. The study highlights that the financial user must be vigilant at every step in the loan availing process and ensure that the process happens transparently and within the regulatory ambit laid by the RBI.

Stylized Facts of the FOMC’s Longer-Run Forecasts

Conventional explanations of monetary policy decisions in the United States assume that the longer-run Federal funds rate is determined by a representative central banker (i.e., the Fed) using longer-term forecasts of economic activity and unemployment. This assumption is inconsistent with the federalist structure of the Federal Reserve in which the Federal funds rate is determined by a committee made up of the Federal Reserve Board and the Federal Reserve Banks. This inconsistency would be irrelevant if differences in the Fed participants’ longer-run projections were small or constant, but they are not: disparities in these longer-run projections are large and volatile. This finding raises several questions: Are FOMC participants relying on the same forecasting framework (i.e., model or rules of thumb) but using different values for the forecast drivers? Or are these participants using the same forecast drivers but relying on different frameworks?

Relationship Between Digital Payments Platforms, Merchants and Banks in India Using Social Network Analysis

The Digital India programme is one of the flagship programmes of the Government of India with a focus on promoting cashless transactions using various modes of digital payments. These modes include Mobile Wallets, Use of Credit and Debit Cards, Mobile banking, internet banking and UPI. The study aims to analyse the area of Digital Payments and understand how banks and financial institutions are strategizing themselves to gain a competitive advantage in this Digital Era. This will be achieved by mapping the relationship between the Indian Banks and the Digital Payment platforms using Social Network Analysis, thus trying to identify significant performing banks and their association with classified digital payment platforms. This network analysis will help banks to detect change-in-opinion, and design strategic decisions by resolving complications from the consumer’s perspective. This study demands the latest data, collected from pertinent sources. Information is being gathered from the National Payments Corporation of India (NPCI), supported by the Reserve Bank of India (RBI) and the Indian Bank’s Association (IBA), which is functioning as an often related umbrella organisation for retail payments, settlement systems and operations in India.

Priority Sector Lending in India: A Non Parametric Analysis

Priority sectors form the foundation and base structure of an economy. Providing adequate financial aid to these important sectors can lead to the development of an economy in real terms. These sectors include Agriculture, Micro Small and Medium Enterprises, Housing, Education and other weaker sections of an economy. Reserve Bank of India, since 1968 have specified separate targets and sub-targets for priority sector lending, falling short of which funds are transferred to Rural Infrastructure Development Fund (RIDF). The present study aims to analyse trends and performance patterns of priority sector lending at all Indian levels and Punjab in particular from 2004-05 to 2017-18. Comparative analysis of public and private banks has been done in India and Punjab and the impact of the crisis period on priority sector lending is also studied sector-wise. Steady CAGRs and increasing growth rates indicate a positive environment in banks concerning lending. But lack of social intent in private banks needs to be catered. This study analyses the trends and performance, pinpoints the problem areas and suggests some policy implications to improve lending to priority sectors.

Geopolitical Risks and Yield Dynamics in the Australian Sovereign Bond Market

Geopolitical risks and shocks such as military conflicts, terrorist attacks, and war tensions are known to cause significant economic downturns. The main purpose of this paper is to determine the dynamics between Australian sovereign bond yields and geopolitical risk. This is achieved by employing a quantile regression analysis. The findings of this study indicate that the impact of geopolitical risk on Australian sovereign yield dynamics is asymmetrical. Furthermore, an increase in geopolitical risk only impacts short-term yields at extreme regimes. However, the impact is, by and large, insignificant. On the other hand, an increase in geopolitical risk does have a statistically significant positive impact on medium- and long-term yields across most quantiles. Lastly, an increase in geopolitical risk tends to result in a steeper yield curve at the belly of the curve but causes the yield curve to flatten at the long end. This study is the first study that holistically examines the dynamics between geopolitical risk and Australian sovereign bond yields. The study thereby contributes to the body of knowledge on Australian bond yields, specifically, and adds to the sparse body of knowledge on the dynamics between geopolitical risk and sovereign bond yields. The findings of this study have implications for monetary policy makers, given that shifts in sovereign bond yields could impact all three core mandates of the Australian Reserve Bank. Furthermore, changes in the slope of the yieldcurve could be used by monetary policy makers to pre-empt changes in future economic growth. The results of this study also relate to fiscal policy formulation, given that yields directly impact the cost of government borrowing. Lastly, portfolio managers could benefit from the results of this study, as these results provide information on the ability of Australian sovereign bonds to hedge against geopolitical risk.

Gender Differences in Inflation Expectations: Recent Evidence from India

This study investigates gender disparities in inflation expectations in India using data from the Reserve Bank of India’s Households’ Inflation Expectations Survey (March 2011 to September 2022). To determine these differences, the authors analyze the expectations of future prices for various categories including food products, nonfood products, household durables, housing, and general prices for both a short-term horizon (the next three months) and a long-term horizon (one year ahead). The authors employ independent sample t test, ordinary least square (OLS) regression, and ordinal logistic regression (OLOGIT) models to assess the average inflation expectations disparities between genders. The results demonstrate a significant relationship between gender and inflation expectations, with the findings indicating that, on average, females exhibit higher inflation expectations compared to males.

Making a Central Bank Out of the Federal Reserve: A Historical Perspective on Wartime Amendments to the Federal Reserve Act

ABSTRACT One of the signature policy achievements of the Progressive era was the passage of the Federal Reserve Act in 1913. This paper argues that the original Act did not create an effective central bank and consequently did not bring about significant structural change in domestic monetary institutions. Early leaders of the Federal Reserve, frustrated with the constraints on reserve bank operations, actively lobbied Congress to secure changes to the Act. These efforts only succeeded after the U.S. entered World War 1 in the spring of 1917, triggering a transformation in the monetary base that elevated the position and centrality of the Federal Reserve. Seen in this light, the wartime amendments were a victory for the activist institution-builders within the Federal Reserve in addition to being essential for the federal government's ability to finance the war effort.

An Empirical Study on Efficient Banking System and Services: Reality or Myth

In 1991-1992 Liberalisation has been initiated in Indian economy, and liberalization was incomplete without Globalization and Privatisation (LPG). All these initiatives have opened the doors for the private and foreign parties, who were interested in banking business. LPG has fastened the pace of growth in Indian economy, mobilizing the funds, immense infrastructure development, investment churning etc. From the customer perspective, services have been improved drastically, transaction time has been reduced, customers are empowered by technology driven banking. Earlier customers had to choose Public sector banks as an only option, to avail the banking services but after LPG there are many options to get banking services. Although private sector banks has given a intense competition to the PSU (Public sector units) banks but they joined the banking industry with a motive of profitability and wealth maximisation, a large number of complex products are introduced to meet the different requirements of the customer, but these products are not easily understood by the customers and leads to mis-selllling. In the name of the superior services, multiple and exorbitant charges are levied on the customers and erode the customer money. By arranging the modern looking facilities and maintaining physical appearance of the branch premises, higher Average balance is demanded from the customers. The services are based on the financial health of the customer. In this paper we briefly elaborate the post liberalization scenario and the bank practices with the provisions of the Customer service code 2018 (CSC, 2018) (Issued by Reserve Bank of India to take care of the customer interest by monitoring the customer services practices in banks). In this research we found that banks are lacking in providing services as per the commitments made by CSC and certain issues are raised by the customers regarding insufficiency in the services. Methodology- Structured questionnaire has been used to collect the data from private sector and public sector bank customers. So that, a representative data can be collected to draw the conclusions. Findings- In this research we found that banks are lacking in providing services as per the commitments made by CSC and certain issues are raised by the customers regarding insufficiency in the services. Practical Implication- This study provides an in-depth analysis of consumer’s problem and the level of unawareness among the customers about their rights. Hence, the apex banking authorities should take relevant steps to spread the awareness among the customer and take corrective actions, so that banking activities can be done as per the norms of customer service code. Originality- This research work is totally new in this field, researcher is able to collect only couple of studies in this field, rest are the literature is similar but not in the same field. It will add to the existing literature for further research. Keywords: Profit Motive, customer service code, Bank Practice, Customer Services