Impact of Monetary and Non Monetary Factors on Banking Performance in India

This paper seeks to find out the impacts of monetary and non monetary forces on the performances of the banking industry by using Vector Auto Regression (VAR) methodology and tries to show the most influential factor affecting the banking performance from a set of factors. In other words, it tries to find out how the growth of banking industry and policies of India are related with each other. For this study the month wise data of several economic parameters of India like IIP, WPI, Gross Fiscal Deficit, Market Exchange Rate (INR/US$), Money Supply (M3), Trade Balance and the banking parameters like Call Rate, Net LaF Borrowings, Scheduled Commercial Banks (SCBs) Deposits, Scheduled Commercial Banks (SCBs) Advances used covering the period March 2008 to October 2012. A set of econometric analysis like impulse response, variance decomposition analysis, unit root tests in order to check the stationarity, are done over here. The research by and large confirms that not only the monetary variables play important role in analyzing the banking performance rather the non-monetary forces also play important role in this respect and also throws light on which factor influences how much are explained here