Market Psychology and Monetary Transmission: RBI’s Policy Impact on Credit Growth in Indian Commercial Banks (2010-2025)

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DOI: https://doi.org/10.5281/zenodo.19552842

Moni Mishra and Disha Lochav (Lal Bahadur Shastri Institute of Management, Delhi)

This study examines how the Reserve Bank of India’s monetary policy has influenced credit growth in Indian commercial banks between 2010 and 2025. Relying on secondary data from RBI publications, Government of India reports, the International Monetary Fund, and the World Bank, the analysis focuses on key policy instruments such as the repo rate, cash reserve ratio, and statutory liquidity ratio to understand the signals of RBI’s policy which shape expectations about the economic conditions arising in future. A time-series framework supported by descriptive statistics and structural break analysis is used to assess the effectiveness of monetary transmission across different economic phases. The findings suggest that monetary policy affects credit growth in a non-uniform manner. Monetary transmission as a psychological-behavioural economic process is found to be asymmetric, with tightening phases having a stronger impact than easing cycles. The study also highlights the role of inflation targeting and overall economic growth, showing that demand-side conditions largely determine credit expansion in India.