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Higher NPAs hinder monetary policy transmission in India

Published : Monday, 19 October, 2020 at 12:00 AM  Count : 63

MUMBAI, Oct 18: High incidence of non-performing assets (NPAs) in banks acts as a major roadblock in transmission of monetary policy actions of the Reserve Bank, a working paper prepared by the officials of the central bank said.
The working paper also made a strong case for capital injection in stateowned banks, arguing that such a move would increase the credit flow to the real sector in addition to ensuing smoother transmission of monetary policy.
"Presence of non-performing assets in a bank also weakens monetary policy transmission and lowers the loan growth rate," said the working paper co-authored by Silu Muduli and Harendra Behera, Department of Economic and Policy Research (DEPR), RBI.
The RBI said the views expressed in the paper are those of authors and not of the Reserve Bank of India.
The working paper titled 'Bank Capital and Monetary Policy Transmission in India' said banks often face many structural and frictional issues which dampen the transmission of monetary policy.
The impediments to transmission are many, but the scourge of high NPAs of banks has played a major role in blocking the transmission.   -PTI

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