Banks must focus on asset quality, capital for monetary policy impact: RBI

The credit channel of monetary policy transmission in India is robust, however, its effectiveness is hampered by asset quality of issues of banks, an RBI working paper on “asset quality and credit channel of monetary policy transmission in India” revealed. 

Hence, for monetary policy actions to have their full impact, banks need to strengthen their capital position and address quality issues.

While asset quality issues have an impact on the credit growth of the economy, better capital position of banks can negate the effect.

“Controlling asset quality, in the short-run, the credit channel of monetary transmission of public sector banks is stronger relative