Monetary Policy, Interbank Liquidity, and Lending Behavior of Banks in India

Publication type: Journal Article
Publication date: 2025-01-03
SAGE
scimago Q3
wos Q3
SJR: 0.329
CiteScore: 2.0
Impact factor: 1.2
ISSN: 09726527, 09730710
Abstract

We investigate the role of interbank liquidity in monetary policy transmission in India. We employ standard and dynamic panel regression methods to analyze data for 48 commercial banks during the period 1999–2018 and 2019–2023. We find a significant role of interbank liquidity in easing the negative impact of monetary policy tightening on bank lending during the first period when the reliance of banks on the interbank market was rising. We also find a heterogeneous role of interbank liquidity in monetary policy transmission across public sector and private sector banks. The policy implication for the monetary authority in India is that, at times of high reliance on the interbank market, managing the net liquidity positions of banks is necessary to realize the desired effects of monetary policy.

JEL Codes: C23, E52, E58, G21

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Ansari M. G., Sensarma R. Monetary Policy, Interbank Liquidity, and Lending Behavior of Banks in India // Journal of Emerging Market Finance. 2025.
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Ansari M. G., Sensarma R. Monetary Policy, Interbank Liquidity, and Lending Behavior of Banks in India // Journal of Emerging Market Finance. 2025.
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TY - JOUR
DO - 10.1177/09726527241306552
UR - https://journals.sagepub.com/doi/10.1177/09726527241306552
TI - Monetary Policy, Interbank Liquidity, and Lending Behavior of Banks in India
T2 - Journal of Emerging Market Finance
AU - Ansari, Md Gyasuddin
AU - Sensarma, Rudra
PY - 2025
DA - 2025/01/03
PB - SAGE
SN - 0972-6527
SN - 0973-0710
ER -
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@article{2025_Ansari,
author = {Md Gyasuddin Ansari and Rudra Sensarma},
title = {Monetary Policy, Interbank Liquidity, and Lending Behavior of Banks in India},
journal = {Journal of Emerging Market Finance},
year = {2025},
publisher = {SAGE},
month = {jan},
url = {https://journals.sagepub.com/doi/10.1177/09726527241306552},
doi = {10.1177/09726527241306552}
}