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Sectoral Efficacy of Macroprudential Policies in India
Employing bank-level supervisory data, the paper examines the efficacy of the macroprudential policy in managing systemic risk in India. It analyses the effect of dynamic risk weights and provisioning on the credit growth in the five sectors targeted by the Reserve Bank of India since 2004.
Views expressed are those of the authors and not of the organisation to which they are affiliated.
Employing bank-level supervisory data, the paper examines the efficacy of the macroprudential policy in managing systemic risk in India. It analyses the effect of dynamic risk weights and provisioning on the credit growth in the five sectors targeted by the Reserve Bank of India since 2004.
The global financial crisis (GFC) is a striking example of how a crisis that originated in one sector, namely the United States (US) housing sector, could cripple the entire financial system and the economy not just in the US but across the globe. The GFC underscored the need for a separate set of countercyclical regulations that could specifically target systemic risk and financial instability emanating from such a risk.
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