Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/225238 
Year of Publication: 
2020
Series/Report no.: 
RBI Working Paper Series No. 12/2020
Publisher: 
Reserve Bank of India, Department of Economic and Policy Research, Mumbai
Abstract: 
This paper examines the role of bank capital in monetary policy transmission in India during the post-global financial crisis period. Empirical results show that banks with higher capital to risk-weighted assets ratio (CRAR) raise funds at a lower cost. Additionally, banks with higher CRAR transmit monetary policy impulses smoothly, while stressed assets in the banking sector hinder transmission. Bank recapitalization to raise CRAR can improve the transmission; however, CRAR above a certain threshold level may not help as the sensitivity of loan growth to monetary policy rate reduces for banks with CRAR above the threshold. Therefore, it can be concluded that monetary policy can influence credit supply of banks depending on their capital position.
Subjects: 
Monetary policy
Bank capital
Bank lending
JEL: 
E44
E51
E52
Document Type: 
Working Paper

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