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Relationship Banking and Monetary Policy Transmission: Evidence from India

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  • ABHISHEK BHARDWAJ
  • KRISHNAMURTHY SUBRAMANIAN
  • PRASANNA TANTRI

Abstract

Though the monetary policy transmission and financial intermediation literature have highlighted the role of the “bank credit channel” and relationship banking, respectively, the effect of relationship banking on the transmission of monetary policy has not been investigated. In this paper, we study the impact of relationship banking on the transmission of monetary policy. Theoretically, relationship banking could ameliorate or exacerbate the effects of monetary policy shocks. Using unique and comprehensive data on bank–borrower relationships in India, we find that firms that enjoy an exclusive banking relationship are less susceptible to monetary policy shocks than firms that bank with multiple banks.

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  • Abhishek Bhardwaj & Krishnamurthy Subramanian & Prasanna Tantri, 2022. "Relationship Banking and Monetary Policy Transmission: Evidence from India," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 54(8), pages 2341-2375, December.
    • Handle: RePEc:wly:jmoncb:v:54:y:2022:i:8:p:2341-2375
    DOI: 10.1111/jmcb.12905
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    Cited by:

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    2. Rajeswari Sengupta & Harsh Vardhan & Akhilesh Verma, 2024. "Bank capital and monetary policy transmission: Analyzing the central bank's dilemma in the Indian context," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2024-019, Indira Gandhi Institute of Development Research, Mumbai, India.
    3. Tsuruta, Daisuke, 2023. "Bank loans, trade credit, and liquidity shortages of small businesses during the global financial crisis," International Review of Financial Analysis, Elsevier, vol. 90(C).

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