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Banks, Development Financial Institutions and Credit Markets in India: A Simple Model of Financial Intermediation

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  • Ghosh, Saibal

Abstract

The paper examines the interaction between a bank and a development financial institution (DFIs) in a macroeconomic set-up, both of whom can lend for working capital and investment finance purposes. Our analysis reveals that the reduction in the interest rate premium on bonds over the deposit rate is an important pre-requisite for the DFI to raise its market share in both investment finance and working capital lending. Also, greater corporate access to bond financing raises investment, output and the bond rate of interest. The policy implications of the analysis are examined

Suggested Citation

  • Ghosh, Saibal, 2003. "Banks, Development Financial Institutions and Credit Markets in India: A Simple Model of Financial Intermediation," MPRA Paper 17349, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:17349
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    File URL: https://mpra.ub.uni-muenchen.de/17349/1/MPRA_paper_17349.pdf
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    References listed on IDEAS

    as
    1. Bengt Holmstrom & Jean Tirole, 1997. "Financial Intermediation, Loanable Funds, and The Real Sector," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(3), pages 663-691.
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    More about this item

    Keywords

    Universal banking; investment finance; working capital lending; bond financing; interest premium;
    All these keywords.

    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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