While the initiatives in the public sector, in some cases, add to the effectiveness of monetary policy intent, they could operate in the opposite direction also, especially when the perceptions and relative weights accorded to credit expansion, price stability and financial stability by the government and RBI significantly differ.
In a financial system, where banks play a dominant role in non-banking activities also, the transmission of monetary policy through both credit and monetary channels is also impacted in this environment. In brief, the operation of monetary policy in India has to be oriented around the predominantly public sector ownership of the banking system.