Gujarat Perspectives of the Future

by Ray, Partha

• ISBN13: 9788171886357
• ISBN10: 8171886353
• Format: Hardcover
• Copyright: 2008-09-01
• Publisher: Academic Foundation

Summary

Set against a backdrop of financial-sector reforms in India, this analysis explores theories and empirical evidence regarding the behavior of commercial banks and their reactions to centralized monetary policy. A comprehensive account of the credit channels of monetary transmission is presented along with observations of the modified IS-LM model within the independent banking sector. Progressive issues such as future consolidation of the banking sector are also addressed. Ultimately, not all commercial banks react uniformly to monetary policy, as ownership, size, liquidity, and capitalization play key roles in determining individual responses.

Author Biography

Partha Ray is a director in the Department of Economic Analysis & Policy at the Reserve Bank of India, where he has been involved with applied economic research for more than a decade. He has published extensively on issues related to banking and monetary policy in professional journals in India and abroad.

Table of Contents

List of Tables, Figures and Annexes	p. 11
Foreword	p. 15
Preface	p. 19
Acronyms	p. 23
Introduction and Overview	p. 25
Banks and Monetary Policy
Indian Context
Issues
Methodology
Broad Findings
Commercial Banks and Monetary Policy: Some Theoretical Considerations	p. 33
Introduction
The Ability of Central Banks to Constrain Bank Lending
Extended IS-LM Models with Explicit Role for Banks
Extended IS-LM Models without an Independent Role of Banks
Banks in Bernanke and Blinder (1988) Model
Loan and Deposits Substitutes for Banks and Corporates
Certificates of Deposit and Bank Behaviour
Existence of Bank-Dependent Borrowers and Commercial Paper
Information Asymmetry and Bank Behaviour
Stein (1998)'s Model
Macro-Implications of Credit and Equity Rationing
Concluding Observations
Monetary Policy and Bank Behaviour in India: Some Stylised Facts	p. 69
Introduction
Macroeconomic and Monetary Trends
Monetary Policy Actions
Direct Measures for Controlling Banks' Balance Sheets
Development of Market-related Instruments
Deregulation of Interest Rates
Deregulation of Bank Operations
Prudential Regulation
Changing Fiscal Scenario
Commercial Bank Behaviour
Aggregative Parameters
Portfolio Composition of Commercial Banks
Profitability Indicators
Concluding Observations
Impact of Monetary Policy on Banks' Balance Sheet: The Macro Behaviour	p. 107
Introduction
Monetary Policy and Bank Portfolio: A Select Review
Methodology of Measuring the Impact
Monetary VAR Models: A Review
Monetary Policy and Bank Portfolios
Specification of the VAR and the Variables
VAR Specification
Choice of Variables and Time Span
Treatment of Seasonality
Results from the Basic Model
Selection of Lag Length
Impulse Responses
Variance Decomposition
Some Robustness Tests
How Far are the above Results Sensitive to Ordering?
Unrestricted Difference VAR
Results with Alterative Choice of Policy Variable
Results in a Five Variable VAR
Results with Quarterly GDP
Results with Interest Rate as an Additional Variable
Conclusion
The Impact of Monetary Policy: Does Ownership Matter?	p. 163
Introduction
Heterogeneity in Impact of Monetary Policy on Banks: A Select Review of Literature
Ownership and Monetary Policy Impact on Banks
Indian Literature on Ownership of Banks
Some Stylised Facts
Public Sector Banks
Foreign Banks
Private Sector Banks
Old Generation Private Sector Banks
New Generation Private Sector Banks
Relative Shares of the Bank Groups
Performance Indicators of the Bank Groups
Portfolio Pattern
Impact of Monetary Shock on Different Types of Banks
Methodology and Data Base
Impulses from the Level VARs
Variance Decomposition
How Robust are these Results?
Sensitiveness of the VARs with respect to Ordering
Impulses from the Difference VAR
Results with Alternative Monetary Stance Variables
Results for a Shorter Time Period (1996-97 through 2003-04)
Results from a Five Variable VAR
Conclusion
Size, Liquidity and Capital: How do they Influence Bank Credit?	p. 211
Introduction
Received Literature
Size, Liquidity and Bank Credit
Capital Constraint and Bank Behaviour
Indian Evidence
A Description of the Panel and Some Stylised Facts
A Description of the Panel
Some Stylised Facts
Empirical Methodology and the Model
Empirical Methodology
The Model
Empirical Results
Base-line Model
Results from Specific Attributes of Size, Liquidity and Capitalisation
Some Robustness Tests
Results with Alternative Liquidity Variable
Results with Alternative Stance Variale
Results with Normalised Variables
Results with Interest Rates
Conclusion
Conclusion and the Way Forward	p. 247
An Overview
Broad Contours
Theoretical Developments
Stylised Facts for India
Econometric Evidence
Policy Implications and Futuristic Scenario
Consolidation in Indian Banking
Changes in Operating Procedure of Monetary Policy
Newer Norms of Bank Capital
Scope of Further Research
References	p. 261
Index	p. 271
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