WPS (DEPR): 04 / 2024

RBI WORKING PAPER SERIES

Assessing the Impact of

Macroprudential Policies on Housing
Credit Dynamics: Evidence from India

Amar Nath Yadav

Vivek Kumar
Alok Kumar Chakrawal
and
Jyoti Kumari

DEPARTMENT OF ECONOMIC AND POLICY RESEARCH

MAY 2024
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Copyright: Reserve Bank of India 2024

 Assessing the Impact of Macroprudential Policies
on Housing Credit Dynamics: Evidence from India

Amar Nath Yadav, Vivek Kumar, Alok Kumar Chakrawal and Jyoti Kumari1

Abstract
This paper evaluates the efficacy of macroprudential (MaP) policy in modulating
bank credit to the housing sector and its impact on the asset quality of banks in
the Indian context. The empirical analysis suggests that a tightening of MaP
policy is effective in controlling bank credit to the housing sector. Tightening
policies appear to have a greater impact on credit growth than easing policies.
Furthermore, a tighter MaP policy complemented with a tighter monetary policy
helps in reducing non-performing assets in the housing sector.

JEL Classification: C23, E58, G21, G28

Keywords: Macroprudential policies, housing credit, credit risk

1
Amar Nath Yadav ([email protected]) is Assistant Adviser; Vivek Kumar is Director and Jyoti Kumari is
Manager in the Department of Statistics and Information Management (DSIM), Reserve Bank of India, Mumbai.
Alok Kumar Chakrawal is Vice-Chancellor of Guru Ghasidas Vishwavidyalaya, Chhattisgarh. The useful
comments and suggestions received from Avdhesh Kumar Shukla, Sanjeev Kumar Gupta, Rajesh
Kavediya, Arpita Agarwal, Priyanka Upreti and an anonymous external reviewer are gratefully acknowledged.
We thank A. R. Joshi, Principal Adviser, DSIM for his valuable guidance and support. The views and opinions
expressed in this paper are those of the authors and not necessarily represent those of the institutions to which
they belong.

1
 Assessing the Impact of Macroprudential Policies
on Housing Credit Dynamics: Evidence from India

Introduction

The major objective of macroprudential (MaP) policies is to strengthen the

banking and the financial system through pre-emptive regulatory measures (G30,
2009; IMF, 2009; Brunnermeier et al., 2009; and TdLG, 2009). These policies aim at
preventing or mitigating the consequences of busts in the credit cycles by utilising the
buffers built during booms. Their countercyclical nature assists in dampening credit
cycles – these can help to contain excessive credit growth during boom times and
support credit growth during downswings in economic activity. Generally, they are
intended to complement microprudential regulations as well as conventional
macroeconomic management instruments, notably monetary and fiscal policies.
According to Adrian and Shin (2010), the increasing interconnectedness of financial
institutions and the excessive growth of assets held by them can also cause systemic
risks. Therefore, effective MaP policies can contribute to the stability of the financial
system.

Since the global financial crisis of 2008, the G20 has supported the use of MaP
policies as part of its international regulatory reform agenda. The increasing use of the
MaP policies, however, has given rise to a pertinent question about their efficacy.
Recent studies on intermediate indicators of systemic risks have provided some
evidence about their effectiveness with regard to credit growth and asset prices (Lim
et al., 2011; Cerutti et al., 2015; Kuttner and Shim, 2016; Zhang and Zoli, 2014; Akinci
and Olmstead-Rumsey, 2018). However, the evidence is still quite scattered for both
advanced and emerging economies. Furthermore, a majority of the empirical evidence
till now, particularly in the Asia-Pacific region, is from commercial databases or at the
systemic level and not at the bank level.

India too has a long history of utilising MaP policies such as Loan-to-Value
(LTV) ratios, risk weights, and sector-specific policies. There are studies assessing
the efficacy of these policies at the aggregate bank credit (Verma, 2018) and sector-
specific levels (Saraf and Chavan, 2023). However, the existing studies have not
adequately captured the issue of whether and how far MaP policies have helped in
controlling credit risk. In this paper, we evaluate the impact of MaP policies exclusively
on the housing sector, which is one of the largest segments of retail credit in India and
assess their impact on housing credit growth and non-performing assets (NPA) using
bank-level data. Additionally, our paper explores how the stance of monetary policy,
the economic cycle, and the financial cycle can affect the impact of MaP. The empirical
strategy used in this paper is as proposed by Cantu et al. (2019).

2
 The structure of the paper is as follows. Section II provides a review of MaP
policies that have been used in the past by different countries and their effectiveness.
Section III highlights the MaP policy instruments adopted in India over time. The data
and methodologies employed are discussed in Section IV. Section V outlines the
results and observations. Finally, we draw conclusions and provide implications for
potential policies in Section VI.

II. Review of Macroprudential Policy Measures and Their Impact

A wide variety of MaP tools are included in the MaP policy toolkit. Both
advanced economies (AEs) and emerging market economies (EMEs) utilise various
mechanisms to mitigate the impact of systemic risk and minimise the negative effects
of externalities on the financial sector. While there has been a greater receptivity to
MaP policies in AEs, particularly after the global financial crisis (GFC), EMEs have
had a longer experience with them given the greater vulnerability of the financial
systems in these economies to adverse shocks. Even though a major part of Asia was
not directly affected during the GFC, the Asian regulators gave a focused attention to
MaP policies, particularly the LTV ratio. Also, the Asian financial crisis of 1997
provided an opportunity to these regulators to experiment with these instruments over
a longer period.

The LTV policies have been shown to be effective in some Asian countries.
Wong et al. (2011) examined the effects of LTV on mortgage delinquency ratios and
other measures of market activity, such as housing prices and household debt.
Mortgage delinquency ratios were significantly reduced after the introduction of LTVs.
An analysis of a panel data set of 13 Asian economies (including India) and 33 other
AEs and EMEs by Zhang and Zoli (2014) reveals that MaP tools contributed to
reducing the procyclicality of credit in Asia - housing-related tools, including LTV ratios,
debt-to-income ratios (DTI), risk weights, and loan loss provisions for mortgage loans,
had a significant impact on bank credit, while changes in reserve requirements and
capital regulations had a limited impact. The study by Kuttner and Shim (2012), which
examined the effectiveness of housing-related MaP policies in 57 AEs and EMEs
between 1980 and 2011, found that these measures were successful in restraining the
expansion of housing credit and maintaining stability in housing prices. There was a
noteworthy correlation between the prudential variables associated with housing
sector credit and the LTV ratio. However, no significant correlations were observed
between the LTV ratio and the exposure limits imposed on banks in relation to the
housing and property sectors.

Claessens et al. (2014) utilised bank-level data from 48 AEs and EMEs for the
period 2000-2010 and found that MaP instruments were more effective at maintaining

3
financial intermediation in upswings than during contractions. Similarly, Cerutti et al.
(2015) examined 119 countries over the period 2000 to 2013, and upheld the efficacy
of MaP policies. Tressel and Zhang (2016), focusing on the Euro area, examined the
impact of instruments targeting the cost of bank capital on mortgage credit growth.
They utilised the Euro-system Bank Lending Survey and found that these instruments
had a significant effect in slowing down mortgage credit growth. Additionally, the study
highlighted the effectiveness of LTV limits, particularly when monetary policy was
eased. In Erdem et al. (2017), the data from 30 EMEs, including India, covering the
period from 2000 to 2013, was analysed to judge the efficacy of MaP policies in
regulating the growth of domestic credit. While underscoring the effectiveness of MaP
policies, the study highlighted the challenges of preventing leakages and maintaining
the effectiveness of MaP instruments during a global liquidity crisis.

Verma (2018) investigated the efficacy of MaP policy in India by utilising annual
data from 1999-00 to 2016-17. Using a panel vector auto-regression (VAR) framework
based on bank groups, the study found that a tightening of MaP measures had an
adverse effect on credit growth with a one-year lag. The findings were similar for
sectors such as housing, commercial real estate and consumer loan portfolios.
However, their usefulness in promoting credit growth during periods of economic
downturn proved to be limited. Sanjiv et al. (2022) investigated the efficacy of MaP
policy on bank credit, housing credit, and housing prices in India using a structural
vector autoregression (SVAR) on monthly data from 2004-2020. The study
demonstrated that MaP policy successfully controlled bank credit, housing credit, and
housing price inflation. Moreover, it showed evidence of the asymmetric effect of MaP
policy, wherein tightening action had a considerable impact on bank credit and housing
prices and easing action largely influenced housing credit. Saraf and Chavan (2023)
analysed the efficiency of the MaP policy in managing systemic risk in India using
bank-level supervisory data for five major sectors, including the housing sector. They
found that the dynamic risk weights and provisioning as tools of MaP were not
statistically significant for controlling loan growth in the retail housing sector while the
LTV ratios were found to be effective.

Many of these studies have either used aggregated or annual data in their
analysis. Aggregation not only leads to a loss of information but also limits inferences
about the behaviour of individual financial institutions. Further, distinguishing between
long-term and short-term effects of the policies may become difficult with annual data.
To address these difficulties, we employ bank-level quarterly data in this paper. Also,
the existing studies have not assessed the effect of the MaP policy on credit quality,
as has been attempted by us.

4
III. MaP Regulations in India

India has a strong track record in implementing countercyclical MaP policies,

with a sector-specific focus. Key sectors targeted under this approach include capital
market exposure, commercial real estate, residential housing, other retail sectors, and
non-bank financial companies. An early recourse to the MaP policy was intended to
counter the impact of interest rate fluctuations on marked-to-market profits of banks in
the early-2000s. During this period, banks’ profits were boosted from a fall in interest
rates. To safeguard their balance sheets and prepare for the monetary cycle reversal
and higher interest rates, the Reserve Bank of India (RBI) directed banks to establish
an investment fluctuation reserve (IFR). The IFR required banks to transfer a portion
of their investment gains over a five-year period, aiming to reach at least 5 per cent of
their investment portfolio.

In 2004, during an expansionary phase of the economy, the MaP measures

included pre-emptive countercyclical provisioning and the application of differentiated
risk weights for the sectors more sensitive to the economic fluctuations. The goal was
to prevent excessive lending and risk-taking during economic booms, which could
create vulnerabilities and potentially lead to financial crises. To address inter-
connectedness in the financial system, the RBI introduced a framework in 2004 for
enhanced monitoring and supervision of large and systemically important financial
institutions or groups, commonly known as financial conglomerates. This framework
aimed to identify and mitigate risks arising from the interconnections between these
institutions, ensuring that their failure did not pose a significant risk to financial stability.

Furthermore, the RBI implemented a capital conservation buffer under the

Basel III framework in a phased manner with the last tranche of 0.625 per cent active
from October 1, 2021. The framework on Countercyclical Capital Buffer (CCyB) was
also put in place by RBI in February 2015 to be activated when the circumstances
warranted. The CCyB requires banks to maintain additional capital during periods of
excessive credit growth, creating a buffer to absorb potential losses. The RBI
introduced additional capital requirements for domestic systemically important banks
(D-SIBs). D-SIBs are considered to be of systemic importance due to their size,
interconnectedness, complexity, and overall significance. The additional capital
requirements for D-SIBs aim to enhance their resilience and reduce the likelihood of
their failure and its potential impact on the financial system.

III.1. Housing Credit Measures for Banks

The RBI has deployed a variety of MaP measures for the housing sector, based
on the evolving economic and financial cycles, and monetary policy settings. These
include LTV ratios according to the size of the loan and category of loan (priority sector

5
loan or non-priority sector loan), risk weights and standard provisioning. Changes in
risk weights affect the capital ratio of the banks, while provisioning affects their profits.

III.2. Time-Varying Risk Weights and Provisioning Norms

India witnessed a disproportionately higher growth in housing credit during the

period of high growth and robust capital inflows from 2004 to 2008 (Chart 1). This trend
was observed alongside increasing real estate prices. To address the potential risks
associated with this credit expansion, the risk weight on retail housing credit was
raised from 50 per cent to 75 per cent in December 2004. Furthermore, the RBI made
changes to the risk weights on housing credit based on loan size and LTV ratio. The
risk weight on smaller-sized housing loans, considered as priority sector loans, was
reduced from 75 per cent to 50 per cent while for larger loans and those with an LTV2
ratio exceeding 75 per cent, the risk weight was increased to 100 per cent.

Chart 1: MaP Instrument - Risk Weights

16
120
14
100 12
10
(Per cent)

(Per cent)
80
8
60
6
40
4
20 2
0 0
Dec-10
Jun-11
Jun-05
Mar-03
Mar-04
Dec-04

Dec-05
Jun-06
Dec-06
Jun-07
Dec-07
Jun-08
Dec-08
Jun-09
Dec-09
Jun-10

Dec-11
Jun-12
Dec-12
Jun-13
Dec-13
Jun-14
Dec-14
Jun-15
Dec-15
Jun-16
Dec-16
Jun-17
Dec-17
Jun-18
Dec-18
Jun-19
Dec-19
Jun-20
Dec-20

Share of Housing Loans in Total Loans (RHS) Housing Loans- Growth rate
Risk Weights on Housing Credit

Source: Reserve Bank of India.

In 2010, the RBI increased the standard asset provisioning on outstanding

housing credit from 0.40 per cent to 2.00 per cent which was subsequently reduced
starting from 2013 onwards (Chart 2). The RBI also implemented changes in LTV
policy in November 2015 and October 2016 (Annex: Table A1).

2
The RBI introduced the LTV cap as a function of loan size for the first time in India on May 14, 2008.

6
 Chart 2: MaP Instrument – Provisioning on Housing Loan
60 2.5

50 2.0
40

(Per cent)
(Per cent)

1.5
30
1.0
20

10 0.5

0 0.0
Jun-05

Jun-14
Jun-06

Jun-07

Jun-08

Jun-09

Jun-10

Jun-11

Jun-12

Jun-13

Jun-15

Jun-16

Jun-17

Jun-18

Jun-19

Jun-20
Mar-03
Mar-04

Dec-09
Dec-04

Dec-05

Dec-06

Dec-07

Dec-08

Dec-10

Dec-11

Dec-12

Dec-13

Dec-14

Dec-15

Dec-16

Dec-17

Dec-18

Dec-19

Dec-20
Housing Loans- Growth rate Provisioning on Housing Loans (RHS)
Source: Reserve Bank of India.

In sum, as highlighted by the Financial Sector Assessment Programme (FSAP-

2012) of the IMF, India has had a long history of using MaP instruments to counter
credit cycles and strengthen the banking system. The LTV policy of RBI has enhanced
system resilience (Lu, 2019); this makes the Indian MaP policy relating to the housing
sector an important case for study, as attempted in this paper.

IV. Data and the Econometric Model

The paper uses bank-level quarterly data of 51 major banks3, covering the
period from Q1:2002 to Q3:2020. This paper examines the impact of MaP policy on
housing credit growth and its NPAs, controlling for individual bank characteristics, such
as asset size, liquidity situation, capital ratio, and funding ratio. Furthermore, we
consider the impact of these policy actions across the different periods of the business
and financial cycles, and the monetary policy cycle. The housing credit growth and
NPA ratio are used as response variables. The four bank-specific control variables as
described in the cross-country analysis framework of Cantu et al. (2019) are used:
size (log of total assets), capital ratio (ratio of Tier-1 capital to total assets), funding
ratio (deposits share in total liabilities), and liquidity ratio (liquid assets in relation to
total assets). These controls are chosen to account for factors at the bank level that
can influence strategic lending decisions. The macroeconomic controls are nominal
GDP, repo rate, and other relevant variables4. To assess the stage of the financial

3
The dataset utilised is an unbalanced panel encompassing all public sector banks, major private sector banks,
and foreign banks operating in India. These banks collectively hold a market share of over 95 per cent in terms of
housing credit.
4
The growth of housing price index (HPI), being an important determinant for housing credit growth, could have
been taken into account. However, as the data on HPI are available only from 2010, this variable has not been
factored into the model.

7
cycle, credit-to-GDP gap was used. A full list of variables is provided in Annex Table
A2.

We also include dummies which represent the intent of MaP policy changes
and the adjustments related to these changes, and baseline capital requirements.
First, we examine the overall impact of MaP tools on housing credit growth and bank
risk. To do so, we have used a dummy, which takes a value of +1 when the RBI signals
a tightening of the policy, i.e., increase in LTV ratio or risk weight or provisioning in the
quarter. It takes the value of 0 when there are no such policy adjustments, and -1 when
the policy is eased or indicated to ease. As a second step, we introduce two separate
dummies, one for tightening policy actions and the other for easing policy actions, to
evaluate the differentiated effects of tightening and easing policy actions.

We employ an indicator variable approach because of the difficulty of

measuring the intensity of instruments. Furthermore, LTV was fixed according to loan
size and amount, thus, constructing a cumulative index is difficult. Consequently, we
utilise separate dummies to split MaP policy changes into easing and tightening cases
to assess the asymmetric effects of each MaP tool. To address the merger/
consolidation of banks, we adjust our dependent variable after the merger. For other
bank controls, no such adjustment was necessary, as no outliers were detected.

The problem of endogeneity is one of the challenges that the literature speaks
about when discussing the effects of MaP policy instruments. For the purpose of
overcoming endogeneity, the system generalised method of moments (GMM)
estimator, pioneered by Arellano and Bond (1991) is preferred due to its superior
consistency and efficiency. It incorporates both the level equation and the difference
equation, allowing for a more robust estimation of the model. The lag variables (up to
lag 4) have been used as instruments.

IV.1. Impact of MaP Policy on Housing Credit Growth

To begin, the panel methodology is used to assess the impact of changes in

MaP policy instruments on credit growth. The baseline regression model is defined as
follows:
𝛥 𝑙𝑜𝑔 𝑌𝑏,𝑡 = 𝛼𝑏 + ∑𝑘𝑗=1 𝛥 𝑙𝑜𝑔 𝑌𝑏,(𝑡−𝑗) + ∑𝑘𝑗=0 𝛽𝑗 𝛥𝑀𝑎𝑃𝑡−𝑗 + 𝛾𝑋𝑏,(𝑡−𝑗) + 𝜃macrovars𝑏,𝑡 + 𝜖𝑏,𝑡 -----(1)

where, 𝑌𝑏,𝑡 is the housing credit outstanding for bank b over quarter t. 𝛾𝑋𝑏,𝑡−𝑗 are bank-
specific characteristics, and 𝛳𝑚𝑎𝑐𝑟𝑜𝑣𝑎𝑟𝑠𝑏,𝑡 are macroeconomic controls. In our
baseline model5, the main variable of interest is 𝛥𝑀𝑎𝑃𝑡−𝑗 , an indicator dummy, which

5
ANCOVA models are regression models that incorporate both qualitative and quantitative variables. They offer
a means to statistically control the influence of quantitative regressors that encompass both quantitative and
qualitative (dummy) variables. These models are extension of ANOVA models which allow a comprehensive
analysis of the relationship between variables while accounting for the effects of covariates.

8
takes value of +1 for tightening MaP policy action in a given quarter and ‒1 when it is
eased and the value of zero when no change happens during that quarter. Four lags
of various variables are included to capture the transmission lags and the impact at
various horizons.

IV.2. Impact of MaP Policy on Different Types of Banks

According to the literature on the bank lending channel, which discriminates

between the supply of loan and the demand for loan movements based on cross-
sectional differences between banks, different banks are able to buffer the impact of
the policy on their loan portfolios differently. Small banks, which may encounter
significant informational friction in financial markets, may have to pay higher interest
rates to attract non-secured deposits if rules are tightened. Relatively illiquid banks
could also be more affected by a tightening of policy if they face difficulties in reducing
their holdings of securities. Thus, we propose the following amendments to our
baseline specification:

𝛥 𝑙𝑜𝑔 𝑌𝑏,𝑡 = 𝛼𝑏 + ∑𝑘𝑗=1 𝛥 𝑙𝑜𝑔 𝑌𝑏,(𝑡−𝑗) + ∑𝑘𝑗=0 𝛽𝑗 𝛥𝑀𝑎𝑃𝑡−𝑗 + ∑𝑘𝑗=0 𝛿𝑗 (𝛥𝑀𝑎𝑃𝑡−𝑗 ∗

𝑋𝑏,(𝑡−𝑗) ) + 𝛾𝑋𝑏,(𝑡−𝑗) + 𝜃macrovars𝑏,𝑡 + 𝜖𝑏,𝑡 ------------- (2)

The interaction term ∑kj=0 δj (ΔMaPt−j ∗ Xb,(t−j) ) has been added to see the
differential policy responses according to bank characteristics. The test examines the
overall significance of ∑𝑘𝑗=0 𝛿𝑗 . Additionally, we determine the impact of tightening and
easing policies separately by differentiating across instruments. For this, we consider
two separate dummies: one for tightening and one for easing. Thus, we estimate the
following regression:

𝛥 𝑙𝑜𝑔 𝑌𝑏,𝑡 = 𝛼𝑏 + ∑𝑘𝑗=1 𝛥 𝑙𝑜𝑔 𝑌𝑏,(𝑡−𝑗) + ∑𝑘𝑗=0 𝛽𝑗 𝛥𝑀𝑎𝑃𝑡−𝑗 + ∑𝑘𝑗=0 𝛿𝑗 (𝛥𝐷𝑢𝑚𝑚𝑦 𝐸𝑎𝑠𝑒 ∗
𝑋𝑏(𝑡−𝑗) ) + ∑𝑘𝑗=0 𝜙𝑗 (𝛥𝐷𝑢𝑚𝑚𝑦 𝑇𝑖𝑔ℎ𝑡 ∗ 𝑋𝑏(𝑡−𝑗) ) + 𝛾𝑋𝑏,(𝑡−𝑗) + 𝜃macrovars𝑏,𝑡 + 𝜖𝑏,𝑡 ------(3)

IV.3. Response of MaP Policy over Different Monetary Policy Conditions

The favourable conditions for financing could have a positive impact on the
demand for housing credit. Conversely, a more restrictive monetary policy could result
in a decline in housing credit growth due to increased costs of funding for banks. In
order to examine the effectiveness of MaP policy instruments under different monetary
policy settings, the following equation is estimated (Bruno et al., 2017):

𝛥 𝑙𝑜𝑔 𝑌𝑏,𝑡 = 𝛼𝑏 + ∑𝑘𝑗=1 𝛥 𝑙𝑜𝑔 𝑌𝑏,(𝑡−𝑗) + ∑𝑘𝑗=0 𝛽𝑗 𝛥𝑀𝑎𝑃𝑡−𝑗 + ∑𝑘𝑗=0 𝜙𝑗 𝛥𝑅𝑒𝑝𝑜𝑡−𝑗 +

∑𝑘𝑗=0 𝜎𝑗 (𝛥𝑀𝑎𝑃𝑡−𝑗 ∗ 𝑅𝑒𝑝𝑜𝑏,(𝑡−𝑗) ) + 𝛾𝑋𝑏,(𝑡−𝑗) + 𝜃macrovars𝑏,𝑡 + 𝜖𝑏,𝑡 ------(4)

The interaction term 𝛥𝑀𝑎𝑃𝑡−𝑗 ∗ 𝑅𝑒𝑝𝑜𝑏,(𝑡−𝑗) is the main coefficient of interest.

The test examines the overall significance of ∑𝑘𝑗=0 𝜎𝑗 .

9
IV.4. Response of MaP Policy over the Business or Financial Cycle
The paper also examines the differential effects of various phases of the
business cycle and the financial cycle on MaP policy. The aim is to investigate as to
whether the impact of MaP policy is amplified during periods of high GDP growth or
conversely affected during periods of low growth. As a baseline specification for the
business cycles, we estimate following equation:

𝛥 𝑙𝑜𝑔 𝑌𝑏,𝑡 = 𝛼𝑏 + ∑𝑘𝑗=1 𝛥 𝑙𝑜𝑔 𝑌𝑏,(𝑡−𝑗) + ∑𝑘𝑗=0 𝛽𝑗 𝛥𝑀𝑎𝑃𝑡−𝑗 + ∑𝑘𝑗=0 𝜌𝑗 (𝛥𝑀𝑎𝑃𝑡−𝑗 ∗

𝛥 𝑙𝑜𝑔 𝐺𝐷𝑃𝑏,(𝑡−𝑗)𝑏,(𝑡−𝑗) ) + 𝛾𝑋𝑏,(𝑡−𝑗) + 𝜃macrovars𝑏,𝑡 + 𝜖𝑏,𝑡 ------------(5)

We use credit-to-GDP gap (the difference between the credit-to-GDP ratio and
its trend) as a measure of the financial cycle to analyse the effects of policy on the
financial cycle. We do this by interacting with the policy dummy and adding the new
term Δ log 𝐶𝑇𝐺𝑏,(𝑡−𝑗) , which denotes credit-to-GDP gap.

𝛥 𝑙𝑜𝑔 𝑌𝑏,𝑡 = 𝛼𝑏 + ∑𝑘𝑗=1 𝛥 𝑙𝑜𝑔 𝑌𝑏,(𝑡−𝑗) + ∑𝑘𝑗=0 𝛽𝑗 𝛥𝑀𝑎𝑃𝑡−𝑗 + 𝜙𝑗 ∑𝑘𝑗=0 𝛥 𝑙𝑜𝑔 𝐶𝑇𝐺𝑏,(𝑡−𝑗) +
∑𝑘𝑗=0 𝜌𝑗 (𝛥𝑀𝑎𝑃𝑡−𝑗 ∗ 𝐶𝑇𝐺𝑏,(𝑡−𝑗) ) + 𝛾𝑋𝑏,(𝑡−𝑗) + 𝜃macrovars𝑏,𝑡 + 𝜖𝑏,𝑡 ----------- (6)

The test examines the overall significance of ∑𝑘𝑗=0 𝜌𝑗 . If coefficients are statistically
significant, that means the MaP policies are more successful when the financial cycle
is more pronounced.

IV.5. Impact of MaP Policy on Non-Performing Assets

To investigate the impact of MaP policy on banks' NPAs, our baseline

specification is as follows:

𝑙𝑜𝑔 𝑁𝑃𝐴𝑏,𝑡 = 𝛼𝑏 + ∑𝑘𝑗=1 𝑙𝑜𝑔 𝑁𝑃𝐴𝑏,(𝑡−𝑗) + ∑𝑘𝑗=0 𝛽𝑗 𝛥𝑀𝑎𝑃𝑡−𝑗 + ∑𝑘𝑗=0 𝜎𝑗 (𝛥𝑀𝑎𝑃𝑡−𝑗 ∗

𝑅𝑒𝑝𝑜𝑏,(𝑡−𝑗) ) + 𝛾𝑋𝑏,(𝑡−𝑗) + 𝜃macrovars𝑏,𝑡 + 𝜖𝑏,𝑡 ---------- (7)

Here, the NPA is a ratio of gross non-performing housing credit to total housing
credit. Since NPAs persist over time, lagged values of the NPA have been included
as an explanatory variable. To determine whether there are any interactions between
MaP policy and monetary policy, interaction terms have been included. Asset quality
can also be impacted by variations in MaP policy, and therefore, it would be interesting
to know the policy impact of easing and tightening instruments individually. To capture
the separate effects of each instrument, our specification is as follows:

𝑙𝑜𝑔 𝑁𝑃𝐴𝑏,𝑡 = 𝛼𝑏 + ∑𝑘𝑗=1 𝑙𝑜𝑔 𝑁𝑃𝐴𝑏,(𝑡−𝑗) + ∑𝑘𝑗=0 𝛽𝑗 𝛥𝑀𝑎𝑃𝑡−𝑗 + ∑𝑘𝑗=0 𝜎𝑗 (𝛥𝐷𝑢𝑚𝑚𝑦 𝐸𝑎𝑠𝑒 ∗
𝑅𝑒𝑝𝑜𝑏,(𝑡−𝑗) ) + ∑𝑘𝑗=0 𝜙𝑗 (𝛥𝐷𝑢𝑚𝑚𝑦 𝑡𝑖𝑔ℎ𝑡 ∗ 𝑅𝑒𝑝𝑜𝑏,(𝑡−𝑗) ) + 𝛾𝑋𝑏,(𝑡−𝑗) + 𝜃macrovars𝑏,𝑡 + 𝜖𝑏,𝑡 --(8)

In the above equation, we also include the interaction for tightening and easing
policy changes.

10
V. Results and Discussion

The regression estimates for the models are reported in Tables 1-7. The tables
are to be read as follows: in our baseline specification (no interaction term), the overall
significance of the policy impact has been presented along with controls while the
second column (with interaction term) presents the interaction effect. The policy impact
is presented with one quarter lag for the short-term policy impact, while the sum of
contemporaneous and four lags is presented separately for the overall size of the
policy effect.

V.1. Impact of MaP Policy on Housing Credit Growth

The results of our baseline model show that the MaP policy can restrain the
housing credit growth on an average, and the effect is statistically significant for two
quarters (Table 1). The impact of bank controls interacted with MaP policy variable
was not statistically significant except for the liquidity ratio and deposit ratio. The
results also indicated that higher capital ratios boost housing credit growth, while the
liquid assets ratio6 had a negative relationship with the housing credit growth.
V.2. Impact of MaP Tightening and Easing Policy on Housing Credit Growth
We employed two dummy variables to assess the impact of tightening and
easing policies on housing credit growth independently. The dummy associated with
tightening policies is negative and statistically significant for up to two quarters. When
bank-specific interaction variables were included, the effect was lower. For easing
MaP policy, the coefficient was negative and statistically significant, implying an
increase in credit growth. However, tightening had a stronger impact than easing
(Table 2).

Table 1: Impact of MaP Policy on Housing Credit Growth

No interaction With interaction
Variables
term terms
D.Log Housing credit (Sum of four Lags) -0.553** -0.577***
L1.D.Log Housing credit -0.245*** -0.223***
L2.D.Log Housing credit -0.154** -0.158**
L3.D.Log Housing credit -0.134** -0.156**
L4.D.Log Housing credit -0.019 -0.040
MaP Dummy, -1,0,1 (Sum of contemporaneous and four Lags) -0.053* -0.063*
L1.MaP Dummy, -1,0,1 -0.017* -0.030*
L2.MaP Dummy, -1,0,1 -0.040* -0.045*
L3.MaP Dummy, -1,0,1 -0.008 -0.078
L4.MaP Dummy, -1,0,1 0.011 -0.029
MaP Dummy x Asset size (Sum of contemporaneous and four Lags) -0.002
L1.MaP Dummy x Asset size 0.061
L2.MaP Dummy x Asset size -0.035
L3.MaP Dummy x Asset size -0.024

6
Liquid assets include cash fund, due from banks and FIs and SLR approved securities.

11
L4.MaP Dummy x Asset size -0.004
MaP Dummy x Capital ratio (Sum of contemporaneous and four Lags) -0.010
L1.MaP Dummy x Capital ratio 0.050
L2.MaP Dummy x Capital ratio 0.022
L3.MaP Dummy x Capital ratio -0.031
L4.MaP Dummy x Capital ratio -0.006
MaP Dummy x Liquidity ratio (Sum of contemporaneous and four Lags) -0.026*
L1.MaP Dummy x Liquidity ratio -0.007*
L2.MaP Dummy x Liquidity ratio -0.001*
L3.MaP Dummy x Liquidity ratio -0.019
L4.MaP Dummy x Liquidity ratio 0.002
MaP Dummy x Deposit ratio (Sum of contemporaneous and four Lags) 0.260*
L1.MaP Dummy x Deposit ratio 0.011
L2.MaP Dummy x Deposit ratio 0.092*
L3.MaP Dummy x Deposit ratio 0.263
L4.MaP Dummy x Deposit ratio 0.271
Log Asset size (Sum of contemporaneous and four Lags) 0.009** 0.004*
L1.Log Asset size -0.405 -0.494*
L2.Log Asset size -0.094 -0.018
L3.Log Asset size 0.084 0.151
L4.Log Asset size 0.188 0.267
Liquidity ratio (Sum of contemporaneous and four Lags) -0.012* -0.001*
L1.Liquidity ratio 0.001* 0.013
L2.Liquidity ratio -0.002 -0.001
L3.Liquidity ratio -0.001 -0.005
L4.Liquidity ratio -0.003 -0.005
Capital ratio (Sum of contemporaneous and four Lags) 0.005* 0.004
L1.Capital ratio 0.006 0.010
L2.Capital ratio 0.022* 0.004
L3.Capital ratio 0.011 0.010
L4.Capital ratio 0.002 0.004
Deposit ratio (Sum of contemporaneous and four Lags) 0.260* 0.147**
L1.Deposit ratio 0.245 0.426
L2.Deposit ratio 0.110 0.048*
L3.Deposit ratio 0.011 0.035
L4.Deposit ratio 0.119 0.139
D.Repo Rate (Sum of contemporaneous and four Lags) -0.021* -0.031*
L1.D.Repo Rate -0.017** -0.004
L2.D.Repo Rate -0.015 -0.009*
L3.D.Repo Rate -0.013 -0.007
L4.D.Repo Rate -0.012 -0.019
D.Log GDP (Sum of contemporaneous and four Lags) 0.764** 0.296**
D.L1.Log GDP 0.072* 0.060*
D.L2.Log GDP 0.263* 0.026
D.L3.Log GDP 0.250 0.218
D.L4.Log GDP 0.212 0.125
D.REER (Sum of contemporaneous and four Lags) -0.002 -0.004
D.L1.REER 0.002 0.002
D.L2.REER 0.005 0.021
D.L3.REER -0.003 -0.002
D.L4.REER -0.023 -0.003
Constant -0.361* -0.166
Observations 2,364 2,364
Number of Banks 51 51

12
Bank Fixed Effect Yes Yes
Arellano-Bond test for AR(1): Z-stats -3.91 (0.000) -3.03 (0.002)
Arellano-Bond test for AR(2): Z-stats -0.92 (0.356) 0.82 (0.414)
Hansen test of overid. restrictions: chi2 9.57 (0.998) 2.22 (0.978)
Note: (i) The “D” operator denotes difference while L1, L2, L3, and L4 refer to the first, second, third,
and fourth quarterly lags, respectively.
(ii) ***, ** and * indicate statistical significance at 1 per cent, 5 per cent and 10 per cent, respectively.
(iii) Figures in brackets are z-statistics. For Hansen test, figures in brackets are p-values.
Source: Authors’ calculations.

Table 2: Impact of MaP Tightening and Easing Policy

on Housing Credit Growth
No interaction With interaction
Variables
term terms
D.Log Housing credit (Sum of four Lags) -0.553** -0.581***
L1.D.Log Housing credit -0.244*** -0.216***
L2.D.Log Housing credit -0.154** -0.165**
L3.D.Log Housing credit -0.135** -0.159**
L4.D.Log Housing credit -0.021 -0.041
Dummy ease, -1,0 (Sum of contemporaneous and four Lags) -0.061 -0.095
L1.Dummy Ease, -1,0 -0.037* -0.196
L2.Dummy Ease, -1,0 -0.016 0.164
L3.Dummy Ease,-1,0 0.005 0.088
L4.Dummy Ease,-1,0 0.017 -0.130
Dummy Tight, 1,0 (Sum of contemporaneous and four Lags) -0.076* -0.062*
L1.Dummy Tight, 1,0 -0.049** 0.125*
L2.Dummy Tight, 1,0 -0.024* -0.145*
L3.Dummy Tight, 1,0 -0.003 -0.087
L4.Dummy Tight, 1,0 0.009 -0.207
Dummy Ease x Log Asset size (Sum of contemporaneous and four
-0.264
Lags)
L1.Dummy Ease x Log Asset size 0.170
L2.Dummy Ease x Log Asset size -0.219
L3.Dummy Ease x Log Asset size -0.058
L4.Dummy Ease x Log Asset size -0.098
Dummy Ease x capital ratio (Sum of contemporaneous and four Lags) 0.044
L1.Dummy Ease x Capital ratio 0.058
L2.Dummy Ease x Capital ratio -0.033
L3.Dummy Ease x Capital ratio -0.107
L4.Dummy Ease x Capital ratio -0.243
Dummy Ease x Liquidity ratio (Sum of contemporaneous and four Lags) -0.026
L1. Dummy Ease x Liquidity ratio -0.017
L2. Dummy Ease x Liquidity ratio -0.013*
L3. Dummy Ease x Liquidity ratio -0.029
L4. Dummy Ease x Liquidity ratio 0.003
Dummy Ease x Deposit ratio (Sum of contemporaneous and four Lags) 0.250
L1.Dummy Ease x Deposit ratio 0.358
L2.Dummy Ease x Deposit ratio 0.453
L3.Dummy Ease x Deposit ratio 0.381
L4.Dummy Ease x Deposit ratio 0.876
Dummy Tight x Log Asset size (Sum of contemporaneous and four Lags) -0.023
L1.Dummy Tight x Log Asset size -0.007
L2.Dummy Tight x Log Asset size -0.144
L3.Dummy Tight x Log Asset size 0.164

13
L4.Dummy Tight x Log Asset size 0.068
Dummy Tight x Deposit ratio (Sum of contemporaneous and four Lags) -0.226*
L1.Dummy Tight x Deposit ratio 0.127
L2.Dummy Tight x Deposit ratio -0.148
L3.Dummy Tight x Deposit ratio -0.140
L4.Dummy Tight x Deposit ratio 0.370
Dummy Tight x Capital ratio (Sum of contemporaneous and four Lags) -0.059
L1.Dummy Tight x Capital ratio 0.022
L2.Dummy Tight x Capital ratio -0.042
L3.Dummy Tight x Capital ratio 0.087
L4.Dummy Tight x Capital ratio 0.006
Dummy Tight x Liquidity ratio (Sum of contemporaneous and four Lags) -0.016
L1.Dummy Tight x Liquidity ratio -0.017
L2.Dummy Tight x Liquidity ratio -0.065**
L3.Dummy Tight x Liquidity ratio -0.027
L4.Dummy Tight x Liquidity ratio 0.009*
Log Asset size (Sum of contemporaneous and four Lags) 0.011** -0.003
L1.Log Asset size -0.050** -0.064***
L2.Log Asset size -0.101 0.150
L3.Log Asset size 0.151 0.090
L4.Log Asset size 0.219 -0.329
Liquidity ratio (Sum of contemporaneous and four Lags) -0.002 -0.002
L1.Liquidity ratio 0.004 0.003
L2.Liquidity ratio 0.001 -0.003
L3.Liquidity ratio -0.002 -0.007
L4.Liquidity ratio 0.003 0.006
Capital ratio (Sum of contemporaneous and four Lags) 0.006 0.014
L1.Capital ratio -0.011 -0.009
L2.Capital ratio -0.017 0.008
L3.Capital ratio 0.013 0.002
L4.Capital ratio 0.001 -0.004
Deposit ratio (Sum of contemporaneous and four Lags) 0.304* 0.346**
L1.Deposit ratio -0.729 -0.264
L2.Deposit ratio -0.505 -0.477
L3.Deposit ratio 0.675 1.060
L4.Deposit ratio 0.360 -0.345
D.Repo Rate (Sum of contemporaneous and four Lags) -0.028 -0.040
L1.D.Repo Rate 0.011 0.008
L2.D.Repo Rate -0.019 -0.021
L3.D.Repo Rate -0.012 -0.006
L4.D.Repo Rate -0.015 -0.030**
D.Log GDP (Sum of contemporaneous and four Lags) 0.988 0.500
D.L1.Log GDP 0.144 0.038
D.L2.Log GDP 0.286 0.161
D.L3.Log GDP 0.328 0.231
D.L4.Log GDP 0.231 0.240
D.REER (Sum of contemporaneous and four Lags) 0.003 0.015
D.L1.REER 0.003* 0.002
D.L2.REER -0.002 -0.003
D.L3.REER 0.001 0.004
D.L4.REER -0.053 -0.081
Constant -0.127 -0.172
Observations 2,364 2,364
Number of Banks 51 51

14
Bank Fixed Effect Yes Yes
Arellano-Bond test for AR(1): Z-stats -3.90 (0.000) -2.81 (0.005)
Arellano-Bond test for AR(2): Z-stats -0.89 (0.371) -0.27 (0.789)
Hansen test of overid. restrictions: chi2 0.15 (0.978) 0.85 (0.988)
Note: (i) The “D” operator denotes difference while L1, L2, L3, and L4 refer to the first, second, third,
and fourth quarterly lags, respectively.
(ii) ***, ** and * indicate statistical significance at 1 per cent, 5 per cent and 10 per cent, respectively.
(iii) Figures in brackets are z-statistics. For Hansen test, figures in brackets are p-values.
Source: Authors’ calculations.

V.3. Response of MaP Policy over Different Monetary Policy Conditions

The repo rate and the growth of housing credit were negatively correlated and
statistically significant as shown in Table 3. The coefficient of the interaction term of
MaP policy with repo rate was positive and statistically significant, indicating that when
both MaP and monetary policies moved in the same direction, they had a stronger
impact on housing credit growth.

V.4. Response of MaP policy over Business Cycle and Financial Cycle

The MaP measures were found to be more effective during high growth phase,
as indicated by the interaction term (Table 4). The impact of MaP policy on housing
credit growth during various phases of the financial cycle did not vary significantly
(Table 5).

Table 3: Impact of MaP and Monetary Policy on Housing Credit Growth

No interaction With interaction

Variables
term terms
D.Log Housing credit (Sum of four Lags) -0.553** -0.555**
L1.D.Log Housing credit -0.245*** -0.242***
L2.D.Log Housing credit -0.154** -0.154**
L3.D.Log Housing credit -0.134** -0.138**
L4.D.Log Housing credit -0.019 -0.021
MaP Dummy, -1,0,1 (Sum of contemporaneous and four Lags) -0.053* -0.038
L1.MaP Dummy, -1,0,1 -0.017* 0.021
L2.MaP Dummy, -1,0,1 -0.040* -0.064**
L3.MaP Dummy, -1,0,1 -0.008 -0.017
L4.MaP Dummy, -1,0,1 0.011 0.023
Dummy x Repo (Sum of contemporaneous and four Lags) 0.179*
L1.Map Dummy x Repo 0.272
L2.Map Dummy x Repo 0.178*
L3.Map Dummy x Repo 0.032
L4.Map Dummy x Repo -0.117
Log Asset size (Sum of contemporaneous and four Lags) 0.009** 0.009*
L1.Log Asset size -0.405 -0.444**
L2.Log Asset size -0.094 -0.087
L3.Log Asset size 0.084 0.125
L4.Log Asset size 0.188 -0.224
Liquidity ratio (Sum of contemporaneous and four Lags) -0.012* -0.012
L1.Liquidity ratio 0.001* 0.003
L2.Liquidity ratio -0.002 0.002

15
 L3.Liquidity ratio -0.001 -0.003
L4.Liquidity ratio -0.003 0.003
Capital ratio (Sum of contemporaneous and four Lags) 0.005* 0.005
L1.Capital ratio 0.006 -0.013
L2.Capital ratio 0.022* -0.011
L3.Capital ratio 0.011 0.004
L4.Capital ratio 0.002 0.003
Deposit ratio (Sum of contemporaneous and four Lags) 0.260* 0.238
L1.Deposit ratio 0.245 -0.496
L2.Deposit ratio 0.110 -0.636
L3.Deposit ratio 0.011 0.667
L4.Deposit ratio 0.119 0.282
D.Repo Rate (Sum of contemporaneous and four Lags) -0.021* -0.020
L1.D.Repo Rate -0.017** 0.010
L2.D.Repo Rate -0.015 -0.015
L3.D.Repo Rate -0.013 -0.008
L4.D.Repo Rate -0.012 -0.015*
D.Log GDP (Sum of contemporaneous and four Lags) 0.764** 0.728
D.L1.Log GDP 0.072* 0.123
D.L2.Log GDP 0.263* 0.213
D.L3.Log GDP 0.250 0.254
D.L4.Log GDP 0.212 0.250*
D.REER (Sum of contemporaneous and four Lags) -0.002 0.003
D.L1.REER 0.002 0.003
D.L2.REER 0.005 0.002
D.L3.REER -0.003 -0.003
D.L4.REER -0.023 0.001
Constant -0.361* -0.334
Observations 2,364 2,364
Number of Banks 51 51
Bank Fixed Effect Yes Yes
Arellano-Bond test for AR(1): Z-stats -3.91 (0.000) -3.89 (0.000)
Arellano-Bond test for AR(2): Z-stats -0.92 (0.356) -0.77 (0.439)
Hansen test of overid. restrictions: chi2 9.57 (0.998) 6.71 (0.978)
Note: (i) The “D” operator denotes difference while L1, L2, L3, and L4 refer to the first, second, third,
and fourth quarterly lags, respectively.
(ii) ***, ** and * indicate statistical significance at 1 per cent, 5 per cent and 10 per cent, respectively.
(iii) Figures in brackets are z-statistics. For Hansen test, figures in brackets are p-values.
Source: Authors’ calculations.

Table 4: Impact of MaP Policy on Housing Credit Growth over Business Cycle

No interaction With interaction

Variables
term terms
D.Log Housing credit (Sum of four Lags) -0.553** -0.558**
L1.D.Log Housing credit -0.245*** -0.158**
L2.D.Log Housing credit -0.154** -0.138**
L3.D.Log Housing credit -0.134** -0.019
L4.D.Log Housing credit -0.019 -0.010
MaP Dummy, -1,0,1 (Sum of contemporaneous and four Lags) -0.053* -0.127**
L1.MaP Dummy, -1,0,1 -0.017* 0.002
L2.MaP Dummy, -1,0,1 -0.040* -0.097***
L3.MaP Dummy, -1,0,1 -0.008 -0.038
L4.MaP Dummy, -1,0,1 0.011 0.007
Map Dummy x GDP (Sum of contemporaneous and four Lags) 1.121*

16
 L1.Map Dummy x GDP -0.237
L2.Map Dummy x GDP 0.625***
L3.Map Dummy x GDP 0.169
L4.Map Dummy x GDP 0.064
Log Asset size (Sum of contemporaneous and four Lags) 0.009** 0.008*
L1.Log Asset size -0.405 -0.453**
L2.Log Asset size -0.094 -0.020
L3.Log Asset size 0.084 0.114
L4.Log Asset size 0.188 -0.267
Liquidity ratio (Sum of contemporaneous and four Lags) -0.012* 0.004
L1.Liquidity ratio 0.001* 0.003
L2.Liquidity ratio -0.002 0.001
L3.Liquidity ratio -0.001 -0.003
L4.Liquidity ratio -0.003 0.004
Capital ratio (Sum of contemporaneous and four Lags) 0.005* 0.004
L1.Capital ratio 0.006 -0.014
L2.Capital ratio 0.022* -0.005
L3.Capital ratio 0.011 0.005
L4.Capital ratio 0.002 0.012
Deposit ratio (Sum of contemporaneous and four Lags) 0.260* 0.241
L1.Deposit ratio 0.245 -0.553
L2.Deposit ratio 0.110 -0.583
L3.Deposit ratio 0.011 0.665
L4.Deposit ratio 0.119 0.275
D.Repo Rate (Sum of contemporaneous and four Lags) -0.021* -0.056*
L1.D.Repo Rate -0.017** 0.012
L2.D.Repo Rate -0.015 -0.02
L3.D.Repo Rate -0.013 -0.01
L4.D.Repo Rate -0.012 -0.016
D.Log GDP (Sum of contemporaneous and four Lags) 0.764** 1.001
D.L1.Log GDP 0.072* 0.065
D.L2.Log GDP 0.263* 0.358
D.L3.Log GDP 0.250 0.219
D.L4.Log GDP 0.212 0.415***
D.REER (Sum of contemporaneous and four Lags) -0.002 0.002
D.L1.REER 0.002 0.003
D.L2.REER 0.005 0.003
D.L3.REER -0.003 -0.004
D.L4.REER -0.023 0.002
Constant -0.361* -0.380*
Observations 2,364 2,364
Number of Banks 51 51
Bank Fixed Effect Yes Yes
Arellano-Bond test for AR(1): Z-stats -3.91 (0.000) -3.90 (0.000)
Arellano-Bond test for AR(2): Z-stats -0.92 (0.356) -0.48 (0.629)
Hansen test of overid. restrictions: chi2 9.57 (0.998) 3.84 (0.898)
Note: (i) The “D” operator denotes difference while L1, L2, L3, and L4 refer to the first, second, third,
and fourth quarterly lags, respectively.
(ii) ***, ** and * indicate statistical significance at 1 per cent, 5 per cent and 10 per cent, respectively.
(iii) Figures in brackets are z-statistics. For Hansen test, figures in brackets are p-values.
Source: Authors’ calculations.

17
Table 5: Impact of MaP Policy on Housing Credit Growth over Financial Cycle

No interaction With interaction

Variables
term terms
D.Log Housing credit (Sum of four Lags) -0.553** -0.556**
L1.D.Log Housing credit -0.245*** -0.246***
L2.D.Log Housing credit -0.156** -0.157**
L3.D.Log Housing credit -0.135** -0.137**
L4.D.Log Housing credit -0.016 -0.017
MaP Dummy, -1,0,1 (Sum of contemporaneous and four Lags) -0.053 -0.058
L1.MaP Dummy, -1,0,1 -0.017 -0.024
L2.MaP Dummy, -1,0,1 -0.038* -0.038
L3.MaP Dummy, -1,0,1 -0.007 -0.006
L4.MaP Dummy, -1,0,1 0.009 0.010
Credit GDP gap (Sum of contemporaneous and four Lags) -0.010 -0.013
L1.Credit GDP gap -0.002 -0.002
L2.Credit GDP gap -0.005 -0.006
L3.Credit GDP gap -0.003 -0.004
L4.Credit GDP gap 0.001 0.012
Map x Credit GDP gap (Sum of contemporaneous and four Lags) -0.027
L1.Map Dummy x Credit GDP gap -0.018
L2.Map Dummy x Credit GDP gap -0.003
L3.Map Dummy x Credit GDP gap -0.003
L4.Map Dummy x Credit GDP gap -0.004
Log Asset size (Sum of contemporaneous and four Lags) 0.009** 0.005
L1.Log Asset size -0.405 -0.494**
L2.Log Asset size -0.094 -0.057
L3.Log Asset size 0.084 0.141
L4.Log Asset size 0.188 -0.313
Liquidity ratio (Sum of contemporaneous and four Lags) -0.012* 0.004
L1.Liquidity ratio 0.001* 0.001
L2.Liquidity ratio -0.002 -0.001
L3.Liquidity ratio -0.001 -0.002
L4.Liquidity ratio -0.003 0.005
Capital ratio (Sum of contemporaneous and four Lags) 0.005* 0.002
L1.Capital ratio 0.006 -0.010
L2.Capital ratio 0.022* -0.020
L3.Capital ratio 0.011 0.008
L4.Capital ratio 0.002 0.001
Deposit ratio (Sum of contemporaneous and four Lags) 0.260* 0.564
L1.Deposit ratio 0.245 -0.703
L2.Deposit ratio 0.110 -0.590
L3.Deposit ratio 0.011 0.734
L4.Deposit ratio 0.119 0.414
D.Repo Rate (Sum of contemporaneous and four Lags) -0.021* -0.025
L1.D.Repo rate -0.017** 0.011
L2.D.Repo rate -0.015 -0.016
L3.D.Repo rate -0.013 -0.015
L4.D.Repo rate -0.012 -0.011
D.Log GDP (Sum of contemporaneous and four Lags) 0.764** 1.085
L1.D.Log GDP 0.072* 0.158
L2.D.Log GDP 0.263* 0.311
L3.D.Log GDP 0.250 0.396
L4.D.Log GDP 0.212 0.214

18
 D.REER (Sum of contemporaneous and four Lags) -0.002 0.006
L1.D.REER 0.002 0.002
L2.D.REER 0.005 0.003
L3.D.REER -0.003 -0.004
L4.D.REER -0.023 0.012
Constant -0.361* -0.245
Observations 2,364 2,364
Number of Banks 51 51
Bank Fixed Effect Yes Yes
Arellano-Bond test for AR(1): Z-stats -3.91 (0.000) -4.98 (0.000)
Arellano-Bond test for AR(2): Z-stats -0.92 (0.356) -1.02 (0.305)
Hansen test of overid. restrictions: chi2 9.57 (0.978) 10.89 (0.998)
Note: (i) The “D” operator denotes difference while L1, L2, L3, and L4 refer to the first, second, third,
and fourth quarterly lags, respectively.
(ii) ***, ** and * indicate statistical significance at 1 per cent, 5 per cent and 10 per cent, respectively.
(iii) Figures in brackets are z-statistics. For Hansen test, figures in brackets are p-values.
Source: Authors’ calculations.

V.5. Impact of MaP Policy on NPAs

As per our baseline specification, the MaP policy coefficient did not have a
statistically significant impact on the NPA ratio in the housing sector. However, when
we included the interaction term with the repo rate, the MaP coefficient was positive
and statistically significant (Table 6). We did not find any noteworthy influence of the
bank-specific characteristics on the NPA ratio.

We also considered two separate dummies for tight and easy MaP policies
(Table 7). We observed that a tighter MaP policy decreased the NPA ratio, while an
easy policy did not have a significant effect. Since any tightening applies to the entire
loan portfolio including new loans, the NPA ratio may reduce because of a rebalancing
of the risk weight and provisioning.

Table 6: MaP Policy Impact on NPA Ratio

No interaction With interaction

Variables
term terms
Log GNPA ratio (Sum of four Lags) 0.909*** 0.913***
L1.Log GNPA ratio 0.754*** 0.755***
L2.Log GNPA ratio 0.114** 0.113**
L3.Log GNPA ratio 0.040* 0.040*
L4.Log GNPA ratio 0.092 0.091
MaP Dummy, -1,0,1 (Sum of contemporaneous and four Lags) 0.025 -0.027
L1.MaP Dummy 0.025 0.008
L2.MaP Dummy 0.018 0.025
L3.MaP Dummy -0.006 -0.033
L4.MaP Dummy -0.004 -0.006
MaP x Repo rate (Sum of contemporaneous and four Lags) 0.394*
L1.MaP Dummy x D.Repo rate 0.125
L2.MaP Dummy x D.Repo rate 0.037
L3.MaP Dummy x D.Repo rate 0.200**
L4.MaP Dummy x D.Repo rate 0.012

19
 Log Asset size (Sum of contemporaneous and four Lags) -0.016*** -0.016**
L1.Log Asset size -0.352*** 0.375***
L2.Log Asset size -0.120 -0.134
L3.Log Asset size 0.297 0.293
L4.Log Asset size -0.342 -0.345
Liquidity ratio (Sum of contemporaneous and four Lags) 0.004** 0.004**
L1.Liquidity ratio -0.012** -0.012**
L2.Liquidity ratio 0.012 0.012
L3.Liquidity ratio -0.023*** -0.021***
L4.Liquidity ratio 0.012** 0.012**
Capital ratio (Sum of contemporaneous and four Lags) -0.024*** -0.024**
L1.Capital ratio 0.059*** 0.058***
L2.Capital ratio 0.038 0.035
L3.Capital ratio -0.028 -0.024
L4.Capital ratio -0.011 -0.014
Deposit ratio (Sum of contemporaneous and four Lags) -0.294 -0.310
L1.Deposit ratio 0.312* 0.387*
L2.Deposit ratio -0.452 -0.431
L3.Deposit ratio -0.251 -0.283
L4.Deposit ratio 0.291 0.268
D.Repo Rate (Sum of contemporaneous and four Lags) -0.043* -0.042
L1.D.Repo rate 0.005 0.004
L2.D.Repo rate -0.014 -0.019
L3.D.Repo rate -0.005 -0.004
L4.D.Repo rate -0.011 -0.010
D.Log GDP (Sum of contemporaneous and four Lags) -0.164* -0.295*
L1.D.Log GDP 0.175 0.227
L2.D.Log GDP 0.226 0.126
L3.D.Log GDP 0.732*** 0.837***
L4.D.Log GDP -0.360* -0.555**
D.REER (Sum of contemporaneous and four Lags) -0.001 -0.002
L1.D.REER -0.003 -0.005
L2.D.REER -0.002 -0.002
L3.D.REER 0.005* 0.005
L4.D.REER 0.001 0.001
Constant 0.590* 0.612*
Observations 2,364 2,364
Number of Banks 51 51
Bank Fixed Effect Yes Yes
Arellano-Bond test for AR(1): Z-stats -4.97 (0.000) -4.98 (0.000)
Arellano-Bond test for AR(2): Z-stats -0.96 (0.297) -1.02 (0.305)
Hansen test of overid. restrictions: chi2 21.66 (0.978) 10.89 (0.998)
Note: (i) The “D” operator denotes difference while L1, L2, L3, and L4 refer to the first, second, third,
and fourth quarterly lags, respectively.
(ii) ***, ** and * indicate statistical significance at 1 per cent, 5 per cent and 10 per cent, respectively.
(iii) Figures in brackets are z-statistics. For Hansen test, figures in brackets are p-values.
Source: Authors’ calculations.

20
 Table 7: Impact of MaP Policy Tightening and Easing on NPA Ratio

No interaction With interaction

Variables
term terms
Log GNPA ratio (Sum of four Lags) 0.904*** 0.907***
L1.Log GNPA ratio 0.750*** 0.752***
L2.Log GNPA ratio 0.117** 0.120**
L3.Log GNPA ratio 0.045* 0.046
L4.Log GNPA ratio 0.089 0.083
Dummy Ease, -1,0 (Sum of contemporaneous and four Lags) -0.045 -0.080
L1.Dummy Ease, -1,0 0.040 0.035
L2.Dummy Ease, -1,0 0.069 0.027
L3.Dummy Ease,-1,0 -0.021 -0.018
L4.Dummy Ease,-1,0 -0.012 0.029
Dummy Tight, 1,0 (Sum of contemporaneous and four Lags) -0.067 -0.476**
L1.Dummy Tight, 1,0 0.027 -0.188
L2.Dummy Tight, 1,0 -0.003 -0.632*
L3.Dummy Tight, 1,0 -0.020 -0.438*
L4.Dummy Tight, 1,0 -0.019 -0.082
Dummy Tight x Repo (Sum of contemporaneous and four Lags) -0.207**
L1.Dummy Tight x D.Repo rate -0.039
L2.Dummy Tight x D.Repo rate 0.006
L3.Dummy Tight x D.Repo rate -0.127**
L4.Dummy Tight x D.Repo rate -0.047*
Dummy Ease x Repo (Sum of contemporaneous and four Lags) 0.079
L1.Dummy Ease x D.Repo rate -0.011
L2.Dummy Ease x D.Repo rate 0.091**
L3.Dummy Ease x D.Repo rate 0.034
L4.Dummy Ease x D.Repo rate -0.097***
Log Asset size (Sum of contemporaneous and four Lags) -0.015** -0.004**
L1.Log Asset size 0.249 0.316
L2.Log Asset size -0.642** -0.677**
L3.Log Asset size -0.241 0.545
L4.Log Asset size -0.150 -0.188
Liquidity ratio (Sum of contemporaneous and four Lags) 0.005** 0.005**
L1.Liquidity ratio -0.013** 0.011**
L2.Liquidity ratio 0.011** 0.006**
L3.Liquidity ratio -0.022 -0.022
L4.Liquidity ratio 0.008 0.010**
Capital ratio (Sum of contemporaneous and four Lags) -0.024** -0.025**
L1.Capital ratio -0.064 -0.005
L2.Capital ratio 0.027 -0.001
L3.Capital ratio -0.023 -0.012
L4.Capital ratio -0.009 0.009
Deposit ratio (Sum of contemporaneous and four Lags) 0.642 -0.728
L1.Deposit ratio 0.473 0.815*
L2.Deposit ratio 0.045 -0.942
L3.Deposit ratio 0.581 0.350
L4.Deposit ratio 0.633 0.504
D.Repo Rate (Sum of contemporaneous and four Lags) -0.044* -0.095**
L1.D.Repo rate 0.017 -0.050**
L2.D.Repo rate -0.012* -0.019*
L3.D.Repo rate -0.009 -0.005
L4.D.Repo rate -0.005 -0.021

21
 D.Log GDP (Sum of contemporaneous and four Lags) -0.998 -1.549**
L1.D.Log GDP -0.674* 0.461**
L2.D.Log GDP 0.244 0.341*
L3.D.Log GDP 0.780** 0.917**
L4.D.Log GDP -0.280 -0.169
D.REER (Sum of contemporaneous and four Lags) -0.307 -0.056
L1.D.REER -0.201 -0.352
L2.D.REER -0.190 -0.747
L3.D.REER -0.124 -0.094
L4.D.REER -0.140 -0.052
Constant -0.092 -0.080
Observations 2,364 2,364
Number of Banks 51 51
Bank Fixed Effect Yes Yes
Arellano-Bond test for AR(1): Z-stats -5.03 (0.000) -4.98 (0.000)
Arellano-Bond test for AR(2): Z-stats -0.06 (0.954) 0.36 (0.716)
Hansen test of overid. restrictions: chi2 4.52 (0.978) 10.89 (0.998)
Note: (i) The “D” operator denotes difference while L1, L2, L3, and L4 refer to the first, second, third,
and fourth quarterly lags, respectively.
(ii) ***, ** and * indicate statistical significance at 1 per cent, 5 per cent and 10 per cent, respectively.
(iii) Figures in brackets are z-statistics. For Hansen test, figures in brackets are p-values.
Source: Authors’ calculations.

VI. Conclusion

This paper evaluated the effectiveness of MaP policy instruments in influencing

housing credit growth and credit quality in India using bank-level quarterly data. The
empirical analysis indicates that the MaP policies were effective in influencing housing
credit growth. Banks’ capital adequacy had a positive impact on housing credit growth.
MaP policies and monetary policies were more effective when used in tandem. MaP
policies were not weakened by business cycle booms. While MaP policy alone did not
seem to affect housing sector NPAs, tighter MaP and monetary policies in conjunction
could help to reduce the NPA ratio in the housing sector. Stress tests, which are
deployed for identifying potential vulnerabilities in the financial system, can guide the
calibration of MaP policies within the regulatory toolkit.

22
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 Annex
Table A1: Differentiated Risk Weights, Provisioning and LTV for Housing Loans

Risk
Loan-to-value (LTV) Provisioning
Period Loan Amount Weight
Ratio (per cent) (per cent)
(per cent)
May 24, 2002 Irrespective of the amount - 50 -
Dec 23, 2004 Irrespective of the amount - 75 -
May 03, 2007 Up to INR 20 lakh - 50 -
Up to INR 30 lakh LTV Ratio = or < 75 50
Above INR 30 lakh LTV Ratio = or < 75 75
Irrespective of the amount LTV Ratio > 75 100
May 14, 2008 -
80 per cent. However, the LTV ratio for housing
loans up to INR 20 lakh should not exceed 90 per
cent.
INR 75 lakh and above - 125 2
LTV Ratio, in general, should not exceed
Dec 23, 2010 80 per cent. However, the LTV ratio for housing
75-125
loans up to INR 20 lakh should not exceed 90 per
cent.
Up to INR 20 lakh 90 50
Above INR 20 lakh and up
June 21, 2013 80 50 0.4
to INR 75 lakh
Above INR 75 lakh 75 75
≤ 80 35
Up to INR 30 lakh
> 80 and ≤ 90 50
Oct 08, 2015 Above INR 30 lakh and up ≤ 75 35 0.4
to INR 75 lakh > 75 and ≤ 80 50
Above INR 75 lakh ≤ 75 75
≤ 80 35
Up to INR 30 lakh
> 80 and ≤ 90 50
June 07, 2017 Above INR 30 lakh and up 0.25
≤ 80 35
to INR 75 lakh
Above INR 75 lakh ≤ 75 50
≤ 80 35
Oct 16, 2020 Irrespective of the amount 0.25
> 80 and ≤ 90 50
≤ 80 35
Up to INR 30 lakh
> 80 and ≤ 90 50
Feb 18, 2022 Above INR 30 lakh and up 0.25
≤ 80 35
to INR 75 lakh
Above INR 75 lakh ≤ 75 50
Source: Reserve Bank of India.

25
 Table A2: Summary of Variables in Panel Data Set

List of Indicators Purpose Transformation

Dependent variables
Housing credit (outstanding) Covers all housing loans D Log

Credit risk (%) Housing credit risk, calculated as Log

the ratio of non-performing loans to
total loans
Independent variables
Policy variables
1 denotes a tightening policy; −1 an
Dummy for MaP policy instruments MaP Dummy
easing; and 0 no change.
Dummy for tightening MaP policy 1 denotes a tightening policy; and 0
Dummy tight
instruments otherwise.
Dummy for easing MaP policy −1 denotes an easing policy; and 0
Dummy ease
instruments otherwise.
Monetary policy condition Repo rate. D Repo
Bank characteristics variables
Total assets A bank’s total assets size Log
Liquidity ratio (%) The ratio of liquid assets to total
-
assets.
Capital ratio (%) Ratio of Tier 1 Capital to risk-
-
weighted assets.
This is a measure of a bank's
Deposits to total liabilities
funding composition, which is the -
ratio (%)
ratio of deposits to total liabilities.
Macroeconomic Variables
GDP(Nominal), seasonally adjusted D Log
Policy rate D Log
Macroeconomic controls for
Trade-weighted Real Effective
isolating the impact of MaP policy
Exchange Rate (REER), seasonally D REER
on banks
adjusted
Credit-to-GDP gap D Log

26