The Transmission Of Monetary Policy Within Banks: Evidence From India
Author(s) Abhiman Das, Prachi Mishra, Nagpurnanand Prabhala


Between 2001 and 2013, India’s central bank injected or drained liquidity from banks through changes in cash reserve requirements. We analyze the lending responses to these quantitative tools of monetary policy using branch level lending data. We focus on frictions within banks that influence transmission, in contrast to prior work that focuses on external frictions between banks and funding markets, which we control for in a saturated specification with high-order interactive bank-year and region-year fixed effects. We show that the intra-bank variation in lending is economically significant. A rich set of branch level asset, liability, and organizational variables explain the intra-bank transmission. Branches that are larger, make loans with smaller ticket size, are deposit-rich, make shorter term loans, have fewer non-performing assets, and with greater managerial capacity respond more to monetary policy. Transmission effects are more sluggish in state-owned banks.

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