Relationship Banking and Monetary Policy Transmission: Evidence from India
By Krishnamurthy Subramanian, Abhishek Bharadwaj, Tantri Prasanna
Journal of Money, Credit and Banking | December 2022
DOI
doi.org/10.1111/jmcb.12905
Citation
Subramanian, Krishnamurthy., Abhishek Bharadwaj., Tantri Prasanna. (2017). Relationship Banking and Monetary Policy Transmission: Evidence from India Journal of Money, Credit and Banking doi.org/10.1111/jmcb.12905.
Copyright
Journal of Money, Credit and Banking, 2017
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Abstract
Though the monetary policy transmission and financial intermediation literatures 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.

K. V. Subramanian is a Professor of Finance (currently on leave) at the Indian School of Business (ISB). He has served as an Executive Director at the International Monetary Fund and was the 17th Chief Economic Advisor to the Government of India from 2018 to 2021.

As Chief Economic Advisor, Professor Subramanian conceptualised India’s economic policy during the once-in-a-century COVID-19 pandemic. By correctly identifying COVID-19 as a huge supply-side shock, Professor Subramanian balanced supply- and demand-side measures, transformed fiscal policy to focus on public capital expenditure, and initiated path-breaking reforms to address structural problems. His foresight and vision enabled the Indian economy to emerge with high growth and strong macro fundamentals despite the Ukraine war following the pandemic.

His policy ideas drew on the path-breaking Economic Surveys. He authored Ethical Wealth Creation for a Prosperous India (2019-20), a Strategic Blueprint for India to Become a $5 Trillion Economy (2018-19), and the post-COVID-19 economy using public capital expenditures in infrastructure and healthcare to further counter-cyclical fiscal policy (2020-21). Acknowledging his contributions, the Hon’ble Prime Minister of India, Shri. Narendra Modi, praised his “academic brilliance, unique perspectives on economic and policy matters, and reformatory zeal.”

Professor Subramanian has been conferred the Distinguished Alumnus award by both his alma maters at IIT Kanpur and IIM Calcutta. He holds a PhD from the University of Chicago. His research spanning banking, law and finance, innovation and economic growth, and corporate governance has been published in the world's leading academic journals.

Krishnamurthy Subramanian
Krishnamurthy Subramanian