Monday, April 12, 2021
Home Business finance Here Is Why, Higher Bank Credit May Not Always Lead To Higher...

Here Is Why, Higher Bank Credit May Not Always Lead To Higher Investment

The analysis shows that in the banking sector, partial monetary policy transmission happens with a lag

An increase in credit from banks may not always lead to a rise in investments as largely anticipated, said an RBI working paper. The analysis shows that in the banking sector, partial monetary policy transmission happens with a lag. Further, banks respond to changes in the money market spreads faster and better than changes in the policy rate.

The working paper titled ‘Monetary Policy Transmission in India: New Evidence from Firm-Bank Matched Data’ noted that quick and significant bank loan expansion resulted from a change in term spread. Citing its analysis, the paper said: “We show that in addition to slow or lagged monetary policy transmission, an increase in credit may not always find its way towards increasing investments.”

Follow NewsGram on Instagram to keep yourself updated.

It added that firms may use their credit lines to finance their current liabilities rather than undertaking capital formation. The RBI working paper said that in some cases at the firm level, counter-intuitive results were witnessed due to a change in monetary policy on the firm’s balance sheet.

ALSO READ: Survey: Digital Tools Can Enable In-Class Teaching In Rural Govt Schools

“This may be because a firm’s investment decisions may be correlated with the demand conditions in the economy, which may in turn be correlated with the monetary policy cycle. Thus, the effect of monetary policy that we estimate on firms may not reflect the true effect of the policy itself,” it said. RBI Working Papers present research work of the central bank’s staff members. The reseach is further disseminated for comments and further debate. (IANS)

STAY CONNECTED

19,518FansLike
362FollowersFollow
1,773FollowersFollow

Most Popular

A Better Nasal Swab For Covid-19 Testing Developed In US

A Q-tip cotton swab inserted into your nose to gauge the presence of Covid-19 infections is a pain and not a pleasant experience. Now,...

Highly-Anticipated Upcoming Action Films From The South

Action has been a perennial favorite genre among lovers of mainstream cinema, especially in the Telugu, Tamil, Kannada, and Malayalam film industries. The larger-than-life...

Pets Helped Children Manage Stress And Loneliness In The Pandemic

Family pets help children better manage feelings of stress and loneliness, which have been greatly exacerbated by virtual schooling as a result of the...

Here’s How Grey Wolves Survived The Extinction At The Last Ice Age

Grey wolves which are among the largest predators to have survived the extinction at the end of the last ice age around 11,700 years...

Digital Payments In India Sees 76% Growth In Last 12 Months

Online transactions and digital payments in the first quarter of this year saw a growth of 76 percent in the first quarter of 2010...

The Minimalist Decor Trend Is On The Rise

The minimalist decor trend has been on the rise since the global pandemic began. As the happiness quotient of people around the globe has...

More Breastfeeding Likely To Lower Risk Of Cardiovascular Diseases

Women who breastfeed more during their reproductive years are less likely to gain weight and build up fat around their abdomen or around the...

Capture Winds Of Change In The Socio-Political Narrative In Political Dynamics Of India

In the book "Sanghi Who Never Went To A Shakha", author Rahul Roushan, who is a former journalist and media entrepreneur, captures winds of...