1.

1 Monetary Policy

Monetary policy is concerned with the changes in the supply of money and credit. It refers to the
policy measures undertaken by the government or the central bank to influence the availability,
cost and use of money and credit with the help of monetary techniques to achieve specific
objectives. Monetary policy aims at influencing the economic activity in the economy mainly
through two major variables, i.e., (a) money or credit supply, and (b) the rate of interest.

The techniques; of monetary policy are the same as the techniques of credit control at the
disposal of the central bank. Various techniques of monetary policy, thus, include bank rate,
open market operations, variable cash reserve requirements, selective credit controls.

Monetary policy is not an end in itself, but a means to an end. It involves the management of
money and credit for the furtherance of the general economic policy of the government to
achieve the predetermined objectives. There have been varying objectives of monetary policy in
different countries in different times and in different economic conditions.

1.2 Objectives of Monetary Policy

The objectives of a monetary policy in India are similar to the objectives of its five year plans. In
a nutshell planning in India aims at growth, stability and social justice.

Various objectives or goals of monetary policy are:

a) Rapid Economic Growth

b) Price Stability
c) Exchange Rate Stability
d) Balance of Payments (BOP) Equilibrium
e) Full Employment
f) Neutrality of Money
g) Equal Income Distribution

These are the general objectives which every central bank of a nation tries to attain by employing
certain tools (Instruments) of a monetary policy. In India, the RBI has always aimed at the
controlled expansion of bank credit and money supply, with special attention to the seasonal
needs of a credit.

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 a) Rapid Economic Growth

It is the most important objective of a monetary policy. The monetary policy can influence
economic growth by controlling real interest rate and its resultant impact on the investment. If
the RBI opts for a cheap or easy credit policy by reducing interest rates, the investment level in
the economy can be encouraged. This increased investment can speed up economic growth.
Faster economic growth is possible if the monetary policy succeeds in maintaining income and
price stability.

b) Price Stability

All the economics suffer from inflation and deflation. It can also be called as Price Instability.
Both inflation are harmful to the economy. Thus, the monetary policy having an objective of
price stability tries to keep the value of money stable. It helps in reducing the income and wealth
inequalities.

c) Exchange Rate Stability

Exchange rate is the price of a home currency expressed in terms of any foreign currency. If this
exchange rate is very volatile leading to frequent ups and downs in the exchange rate, the
international community might lose confidence in our economy. The monetary policy aims at
maintaining the relative stability in the exchange rate.

d) Balance of Payments (BOP) Equilibrium

Many developing countries like India suffer from the Disequilibrium in the BOP. The Reserve
Bank of India through its monetary policy tries to maintain equilibrium in the balance of
payments. The BOP has two aspects i.e. the 'BOP Surplus' and the 'BOP Deficit'. The former
reflects an excess money supply in the domestic economy, while the later stands for stringency
of money. If the monetary policy succeeds in maintaining monetary equilibrium, then the BOP
equilibrium can be achieved.

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 e) Full Employment

It refers to absence of involuntary unemployment. In simple words 'Full Employment' stands for
a situation in which everybody who wants jobs get jobs. However it does not mean that there is
Zero unemployment. In that senses the full employment is never full. Monetary policy can be
used for achieving full employment.

f) Neutrality of Money

Economist such as Wicksted, Robertson have always considered money as a passive factor.
According to them, money should play only a role of medium of exchange and not more than
that. Therefore, the monetary policy should regulate the supply of money. The change in money
supply creates monetary disequilibrium. Thus monetary policy has to regulate the supply of
money and neutralize the effect of money expansion. However this objective of a monetary
policy is always criticized on the ground that if money supply is kept constant then it would be
difficult to attain price stability.

g) Equal Income Distribution

Many economists used to justify the role of the fiscal policy is maintaining economic equality.
However in recent years economists have given the opinion that the monetary policy can help
and play a supplementary role in attainting an economic equality. Monetary policy can make
special provisions for the neglect supply such as agriculture, small-scale industries, village
industries, etc. and provide them with cheaper credit for longer term. This can prove fruitful for
these sectors to come up. Thus in recent period, monetary policy can help in reducing economic
inequalities among different sections of society.1

1.3 Monetary Operations

Monetary operations involve monetary techniques which operate on monetary magnitudes such
as money supply, interest rates and availability of credit aimed to maintain Price Stability, Stable
exchange rate, Healthy Balance of Payment, Financial stability, Economic growth. RBI, the apex

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institute of India which monitors and regulates the monetary policy of the country stabilizes the
price by controlling Inflation. RBI takes into account the following monetary policies.

Open Market Operations

An open market operation is an instrument of monetary policy which involves buying or selling
of government securities from or to the public and banks. This mechanism influences the reserve
position of the banks, yield on government securities and cost of bank credit. The RBI sells
government securities to contract the flow of credit and buys government securities to increase
credit flow. Open market operation makes bank rate policy effective and maintains stability in
government securities market.

Cash Reserve Ratio

Cash Reserve Ratio is a certain percentage of bank deposits which banks are required to keep
with RBI in the form of reserves or balances .Higher the CRR with the RBI lower will be the
liquidity in the system and vice-versa.RBI is empowered to vary CRR between 15 percent and 3
percent. But as per the suggestion by the Narshimam committee Report the CRR was reduced
from 15% in the 1990 to 5 percent in 2002. As of November 2012, the CRR is 4.25 percent.

Statutory Liquidity Ratio

Every financial institution has to maintain a certain quantity of liquid assets with the RBI for
time and demand liabilities. These assets can be cash, precious metals, approved securities like
bonds etc. The ratio of the liquid assets to time and demand liabilities is termed as the Statutory
liquidity ratio.There was a reduction of SLR from 38.5% to 25% because of the suggestion by
Narshimam Committee. The current SLR is 23%

Bank Rate Policy

Bank rate is the rate of interest charged by the RBI for providing funds or loans to the banking
system. This banking system involves commercial and co-operative banks, Industrial
Development Bank of India, IFC, EXIM Bank, and other approved financial institutes. Funds are
provided either through lending directly or rediscounting or buying money market instruments
like commercial bills and treasury bills.

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 Increase in Bank Rate increases the cost of borrowing by commercial banks which results
into the reduction in credit volume to the banks and hence declines the supply of money.
Increase in the bank rate is the symbol of tightening of RBI monetary policy. Bank rate is also
known as Discount rate. The current Bank rate is 8.75%.

Credit Ceiling

In this operation RBI issues prior information or direction that loans to the commercial banks
will be given up to a certain limit. In this case commercial bank will be tight in advancing loans
to the public. They will allocate loans to limited sectors. Few example of ceiling are agriculture
sector advances, priority sector lending.

Credit Authorization Scheme

Credit Authorization Scheme was introduced in November, 1965 when P C Bhattacharya was the
chairman of RBI. Under this instrument of credit regulation RBI as per the guideline authorizes
the banks to advance loans to desired sectors.

Moral Suasion

Moral Suasion is just as a request by the RBI to the commercial banks to take so and so action
and measures in so and so trend of the economy. RBI may request commercial banks not to give
loans for unproductive purpose which does not add to economic growth but increases inflation.

Repo Rate and Reverse Repo Rate

Repo rate is the rate at which RBI lends to commercial banks generally against government
securities. Reduction in Repo rate helps the commercial banks to get money at a cheaper rate and
increase in Repo rate discourages the commercial banks to get money as the rate increases and
becomes expensive. Reverse Repo rate is the rate at which RBI borrows money from the
commercial banks. The increase in the Repo rate will increase the cost of borrowing and lending
of the banks which will discourage the public to borrow money and will encourage them to
deposit.

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 As the rates are high the availability of credit and demand decreases resulting to decrease
in inflation. This increase in Repo Rate and Reverse Repo Rate is a symbol of tightening of the
policy. As of December 2012, the repo rate is 8 % and reverse repo rate is 7%History of
monetary policy2

1.4 RBI's Annual Monetary Policy 2012-13

In Annual Monetary Policy 2012-13, RBI surprised markets by easing Repo rate by 50 bps to
8%. The consensus market expectations were for a cautious 25 bps cut.

 Policy Rate Changes

 Repo rate lowered by 50 bps to 8%

 Reverse Repo rate and Marginal Standing Facility (MSF) Rate automatically lowered
by 50 bps at 7% and 9% respectively. Further, RBI increased borrowing under MSF
from 1% of NDTL to 2% of NDTL. Banks with excess SLR can also borrow under
MSF.
 CRR remains unchanged at 4.75% of NDTL.

 Economic Projections

 RBI pegged the growth forecast for 2012-13 at 7.3% vs. 7.0% projection for 2011-12
 Inflation projection lower at 6.5% in Mar-13 lower than 7% in Mar-12
 Money supply growth for 2012-13 pegged at 15% slightly lower than 15.5% for
2011-12
 Credit growth increased to 17% for 2012-13 compared to 16% for 2011-12

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 Forward guidance statement

 RBI indicates that space is limited for further reduction in policy rates given growth
inflation dynamics.
 Administered prices of petroleum products should be increased to reflect their true
cost of production.
 Liquidity conditions are expected to be stable and move to RBI’s comfort zone of 1%
of NDTL. The increase in MSF limits will also help banks. In case the situation
changes, appropriate steps will be taken.

1.5 Monetary Policy Terms

i. Bank Rate

Bank rate is the minimum rate at which the central bank provides loans to the commercial banks.
It is also called the discount rate. Usually, an increase in bank rate results in commercial banks
increasing their lending rates. Changes in bank rate affect credit creation by banks through
altering the cost of credit.

ii. Cash Reserve Ratio

All commercial banks are required to keep a certain amount of its deposits in cash with RBI.
This percentage is called the cash reserve ratio. The current CRR requirement is 8 per cent.

iii. Inflation

Inflation refers to a persistent rise in prices. Simply put, it is a situation of too much money and
too few goods. Thus, due to scarcity of goods and the presence of many buyers, the prices are
pushed up.

The converse of inflation, that is, deflation, is the persistent falling of prices. RBI can reduce the
supply of money or increase interest rates to reduce inflation.

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 iv. Money Supply

This refers to the total volume of money circulating in the economy, and conventionally
comprises currency with the public and demand deposits (current account + savings account)
with the public.

The RBI has adopted four concepts of measuring money supply. The first one is M1, which
equals the sum of currency with the public, demand deposits with the public and other deposits
with the public. Simply put M1 includes all coins and notes in circulation, and personal current
accounts.

The second, M2, is a measure of money, supply, including M1, plus personal deposit accounts -
plus government deposits and deposits in currencies other than rupee.

The third concept M3 or the broad money concept, as it is also known, is quite popular. M3
includes net time deposits (fixed deposits), savings deposits with post office saving banks and all
the components of M1.

v. Statutory Liquidity Ratio

Banks in India are required to maintain 25 per cent of their demand and time liabilities in
government securities and certain approved securities.

These are collectively known as SLR securities. The buying and selling of these securities laid
the foundations of the 1992 Harshad Mehta scam.

vi. Repo

A repurchase agreement or ready forward deal is a secured short-term (usually 15 days) loan by
one bank to another against government securities.

Legally, the borrower sells the securities to the lending bank for cash, with the stipulation that at
the end of the borrowing term, it will buy back the securities at a slightly higher price, the
difference in price representing the interest.

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vii. Open Market Operations

An important instrument of credit control, the Reserve Bank of India purchases and sells
securities in open market operations.

In times of inflation, RBI sells securities to mop up the excess money in the market. Similarly, to
increase the supply of money, RBI purchases securities3

1.6 National Stock Exchange of India (NSE)

India's largest stock exchange. The exchange operates on an electronic market that allows trades
to be made on its automated system. The exchange was established in 1992 and has grown to be
the country's largest securities exchange. NSE has created several software programs and
interfaces to assist investors with researching and making transactions. Three of the largest
market segments traded on the exchange include wholesale debt, capital market, and derivates.

1.7 Index Profile Information for CNXBANK

CNX Bank Index is a free float capitalization-weighted index comprised of the most liquid and
large capitalized Indian Banking stocks. The index will have 12 stocks from the banking sector,
which trade on the National Stock Exchange. The index was developed with a base value of
1000 as of January 1, 2000.

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1.8 Top Gainers & Losers in CNXBANK

Axis Bank Ltd

Canara Bank
State Bank of India
Kotak Mahindra Bank
Bank of India
HDFC Bank Ltd
Yes Bank Ltd
Bank of Baroda
Union Bank of India
IndusInd Bank Ltd

Punjab National Bank

ICICI Bank Ltd
IndusInd Bank Ltd
Union Bank of India
Bank of Baroda
Yes Bank Ltd
HDFC Bank Ltd
Bank of India
Kotak Mahindra Bank
State Bank of India4

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2.1 Review of Literature

An attempt has been made in this section to review the earlier research works undertaken
in the area of Monetary Policy, market efficiency which helps the researcher to identify the
research gaps and tools

Sumon Kumar Bhaumik,Vinh Dang and Ali M. Kutan (2010), in their article entiled
“Implications of Bank Ownership for the Credit Channel of Monetary Policy
Transmission: Evidence from India”, The study found the differences in impact of monetary
policy changes on less risky short-term and more risky medium-term lending. The results of the
study suggest that there are considerable differences in the reactions of different types of banks
to monetary policy initiatives of the central bank. During periods of tight monetary policy, as
captured by the monetary conditions index, state-owned banks, old private banks and foreign
banks curtail credit in response to an increase in interest rate.5

A Working paper entitled, “Measuring the Reaction of Monetary Policy to the Stock
Market” Written by Roberto Rigobon and Brian Sack(2001) This paper uses an identification
technique based on the heteroskedasticity of stock market returns to identify the reaction of
monetary policy to the stock market. Thus, it appears that the Federal Reserve systematically
responds to stock price movements only to the extent warranted by their impact on the
macroeconomy. The results of the study suggest that stock market movements have a significant
impact on short-term interest rates, driving them in the same direction as the change in stock
prices.6

5
Sumon Kumar Bhaumik,Vinh Dang and Ali M. Kutan (2010), “Implications of Bank Ownership for the Credit
Channel of Monetary Policy Transmission: Evidence from India”, Journal of Banking & Finance, Vol.33,
pp.2418-2428
6
Roberto Rigobon and Brian Sack(2001), “Measuring the Reaction of Monetary Policy to the Stock Market”
Journal of Banking & Finance, pp.1-30

11
An article entitled “Monetary Policy and Stock Market Booms and Busts in the 20th
Century” written by Michael D. Bordo Michael J. Dueker And David C. Wheelock(2007),
The concluded that the central banks can contribute to financial market stability by minimizing
unanticipated changes in inflation. The impulse responses to long-term interest rate shocks
suggest that monetary policies that induce financial markets to reduce inflation risk premia in
long-term interest rates will promote equity market stability.7

Paulo Maio and José Tavares(2007) in this article entitiled “Monetary Policy and the Cross-
Section of Equity Returns: Small versus Large and Value versus Growth” This paper
analyzes the effects of monetary policy shocks over the cross-section of equity returns,
differentiating between small and large stocks and value versus growth stocks. Using three
different proxies for monetary policy. The results of the study show that the contemporaneous
impact of changes in the Federal Funds rate is significantly greater for the returns of small stocks
relative to large stocks.8

Ben Bernanke.S (2003) in his research paper entitled “Monetary Policy and the Stock
Market: Some Empirical Results” This evidence supports the proposition that monetary policy
can lower stock values only to the extent that it weakens the broader economy, and in particular
that it makes households considerably worse off. The risk premium for stocks will rise only to
the extent that broad macroeconomic risk rises, or that people experience declines in income and
wealth that reduce their ability or willingness to absorb risk (Campbell and Cochrane, 1999).9

7
Michael D. Bordo Michael J. Dueker And David C. Wheelock(2007), “Monetary Policy and Stock Market
Booms and Busts in the 20th Century” , FEDERAL RESERVE BANK OF ST. LOUIS, pp.1-57.
8
Paulo Maio and José Tavares(2007), “Monetary Policy and the Cross-Section of Equity Returns: Small versus
Large and Value versus Growth” vol.4,pp.1-59
9
Ben Bernanke.S(2003), “Monetary Policy and the Stock Market: Some Empirical Results” Journal of Banking
& Finance, pp.1-30

12
Peter Sellin(1998) in his research article entitled “Monetary Policy and Empirical Evidence”
There is also evidence to suggest that in times of high and variable inflation investors receive a
risk premium for holding equity. If the monetary authority conducts a counter- cyclical monetary
policy this will result in a negative relation between expected inflation and stock returns, while if
it conducts a pro-cyclical monetary policy we could see a positive relation between expected
inflation and stock returns. There is also evidence to suggest that in times of high and variable
inflation investors receive a risk premium for holding equity10

Marc D. Hayford and A. G. Malliaris (2002) in their working paper entitled “Monetary
Policy and the Stock Market” This paper examines empirically if monetary policy since the
October 19, 1987 stock market crash has been influenced by high valuations of the stock market.
The regression results of the augmented Taylor Rule suggest that rather than the Greenspan
FOMC using the federal funds rate policy to offset increases in the value of the stock market
above estimates of fundamentals, federal funds policy has, perhaps inadvertently, on average
accommodated the apparent stock market overvaluation.11

The study on “Monetary Policy and the Stock Market in the Euro Area” by Nuno Cassola
and Claudio Morana (2002) The stock price and more generally, relative asset prices seem to
pay an important role in the transmission mechanism in the euro area. We do not find any
significant, direct impact of stock prices on inflation. Permanent productivity shocks are the
driving force of the stock market in the long term and contribute significantly to its cyclical
behaviour. Nevertheless dynamics in the stock market is explained by transitory shock. Monetary
policy focused on maintaining price stability in the Long-run can contribute also to stock market
stability.12

10
Peter Sellin(1998), “Monetary Policy and Empirical Evidence” journal of Economics and Business,
vol.36,pp.1-46
11
Marc D. Hayford and A. G. Malliaris (2002), “MONETARY POLICY AND THE STOCK MARKET”,
Economic Review of the Federal Reserve Bank of San Francisco, 1998, Number 3, pp.1-33.
12
NUNO CASSOLA and CLAUDIO MORANA (2002), “MONETARY POLICY AND THE STOCK
MARKET IN THE EURO AREA” ECB Working Paper No 119, pp.1-85.

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The working paper by Punita Rao (2006) entitled “ Monetary Policy: Its Impact On The
Profitability Of Banks In India” The overall monetary and macroeconomic conditions are, at
present quite satisfactory and in line with the policy expectations. Monetary policy is guided by
the objective of provision of adequate liquidity to meet credit growth and support investment
demand in the economy while monitoring carefully the movements in the price level. The policy
stance continues to be one of preference for a soft and flexible interest rate environment within
the framework of macroeconomic stability.13

In his research study Antulio Bomfim.N(2000) “Pre-Announcement Effects, News, and

Volatility:Monetary Policy and the Stock Market” The study examine pre-announcement and
news effects on the stock market in the context of public disclosure of monetary policy decisions.
The results suggest that the stock market tends to be relatively quiet--conditional volatility is
abnormally low--on days preceding regularly scheduled policy announcements. The implications
of the results for broader issues in the finance literature are also discussed.14

An article entitled “Taking Stock: Monetary Policy Transmission to Equity Markets”

written by Michael Ehrmann and Marcel Fratzscher(2013) The study found there are strong
industry-specific effects of U.S. monetary policy. The also fund that for the 500 individual stocks
comprising the S&P500 the firms with low cash flows, small size, poor credit ratings, low debt
to capital ratios, high price-earnings ratios, or a high Tobin's q are affected significantly more by
monetary policy. As to the results of this paper, we have found evidence that monetary policy
affects individual stocks in a strongly heterogeneous fashion.15

13
Punita Rao (2006), “ Monetary Policy: Its Impact On The Profitability Of Banks In India”, International
Business & Economics Research Journal, Vol. 5, pp.1-8
14
Antulio Bomfim.N(2000), “Pre-Announcement Effects, News, and Volatility:Monetary Policy and the Stock
Market”, International Business & Economics Research Journal, vol.3, pp.1-33
15
Michael Ehrmann and Marcel Fratzscher(2013), “Taking Stock: Monetary Policy Transmission to Equity
Markets”, Journal of Money, Credit and Banking, vol.36,pp.720-737

14
David M. Gould and Steven B. Kamin (2000), in their research entitled “The Impact of
Monetary Policy on Exchange Rates During Financial Crises” The study found that credit
spreads and stock prices exert significant impacts on exchange rates during financial crises, but
interest rates still are not estimated to have significant effects. We conclude that while monetary
policy probably does exert an important influence over exchange rates, this most likely takes
place slowly, as central banks attempt to establish credibility, and over longer periods of time
than can be captured in our analysis.16

Working Paper entitled “The Impact of Regulatory Reforms on Cost Structure, Ownership
and Competition in Indian Banking” written by Tianshu Zhao , Barbara Casu and
Alessandra Ferrari(2009), The study found the evidence that deregulation improves banks
performance and fosters competition in the lending market. Results suggest technological
progress, once Indian commercial banks have adjusted to the new regulatory environment. This,
however, does not translate in efficiency gains. The results indicate that Indian commercial
banks changed both their input mix and output composition to accommodate the changes in the
regulatory environment.17

16
David M. Gould and Steven B. Kamin(2000), “THE IMPACT OF MONETARY POLICY ON EXCHANGE
RATESDURING FINANCIAL CRISES” , Journal of Financial Economics , vol.4,pp.1-59
17
Tianshu Zhao , Barbara Casu and Alessandra Ferrari(2009), “The impact of regulatory reforms on cost
structure, ownership and competition in Indian banking” Journal of Banking & Finance, vol. 34, pp.246-254

15
2.2 Statement of the Problem

The Reserve Bank of India the apex regulating body of the Indian Banking sector is empowered
to announce the Monetary Policy of the Indian economy and regulate the system of Money
Supply and Bank Credit. The policy changes increase or decrease interest rates, Repo Rates,
Cash Reserve ratio and Statutory Liquidity Ratio are affected based on periodical reviews are by
the RBI from Time to Time. This phenomenon impacts the growth or decline of the Indian
economy. The overall monetary and macroeconomic conditions are, at present quite satisfactory
and in line with the policy expectations. Monetary policy is guided by the objective of provision
of adequate liquidity to meet credit growth and support investment demand in the economy while
monitoring carefully the movements in the price level.

2.3 Need of the study

The Present study aims at helping the investor in general and small and medium investor
in particular by way of providing adequate information about share price movement at the time
of monetary policy Announcement. This study enables investor to take appropriate investment
decision. The study would also provide on understanding of events which influence share price
in the market.

2.4 Objectives of the Study

i) To Investigate the Impact of monetary policy (CRR) Announcement on share price of

Indian Banks listed in CNX Bank Index, NSE.
ii) To analysis the Reaction of share price pre announcement and post announcement period
of sample Banking sector listed in CNX Bank Index on NSE.

2.5 Hypotheses

1) NH01 There is no significant Impact on share price returns during pre & post Monetary
Policy (CRR) Announcement period.
2) NH02 There is no significant relationship between Market Returns and Company share
price returns during the period of monetary policy announcement.

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2.6 Methodology of the Study

a) Selection of the Sample

The sample selection of this study include all the Banks listed in CNX Bank Index (NSE) as on
2012-2013. There are 12 Banks listed on the NSE.

Table - 2.1

S.No CNX BANKS Market Capitalization (RS CR)

1 State Bank of India 165637.46
2 Bank of Baroda 35747.79
3 Punjab National Bank 30207.25
4 Canara Bank 22816.71
5 Bank of india 21932.3
6 IDBI bank 14625.12
7 Union Bank of India 14581.29
8 Oriental Bank of Commerce 9881.95
9 HDFC Bank 157926.29
10 ICICI Bank 134103.09
11 Axis Bank 60011.09
12 Kotak Mahanidra Bank 46789.86
Source: Prowess Corporate Data Base

The Out of 12 Banks only 8 Banks were selected for this study. It is based on the Market
capitalization of CNX Bank Index These Banks split private & Public Bank. The details of
number of Banks and events are given in the following pages.

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 Table - 2.2
Public Bank

S.No Public Bank Market Capitalization (RS CR)

1 State bank of India 165637.46
2 Bank of Baroda 35747.79
3 Punjab National Bank 30207.25
4 Canara Bank 22816.71
Source: Prowess Corporate Data Base.

Table – 2.3
Private Bank

S.No Private Bank Market Capitalization (RS CR)

1 HDFC Bank 157926.29
2 ICICI Bank 134103.09
3 Axis Bank 60011.09
4 Kotak Mahanidra Bank 46789.86
Source: Prowess Corporate Data Base

b) Sources of data

The Present study mainly depends on the secondary Data. The share prices of the bank
are obtained from prowess data base. The other details were collected from various journals,
magazines, websites and news papers.

c) Period of the study

The present study is to analyses the Impact of Monetary policy in Indian Banking sector
for the period from 26.11.2012 to 09.01.2013

d) Tools used for Study

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 The information content of major events like share price and Monetary Policy
announcement were tested with the help of following tools.

2.7 Market adjusted returns model

1. Abnormal returns
2. Cumulative abnormal returns
3. Descriptive statics
4. Regression

1. Market Adjusted Returns Model

Market adjusted return model was conducted to measure whether any abnormal return
has been earned by shareholder this around the Monetary Policy announcement period. The basic
assumption of market adjusted return model event study is that the information was
communicated publicly and this type of information surprising content that the AR will occur at
the time of event. AR of stock price indicates the impact of the particular event on the stock price
after the obtained the value of Bank return and Market return, finds the expected Abnormal
return and Cumulative Abnormal Return. The actual return and expected return with in the event
period should differ in order to know the possibility to outperform the Indian stock market with
respect to Monetary Policy announcement.

a) Daily Returns

The daily returns on each security in the sample were calculated using the daily adjusted
prices for closing share price and Sensex prices.
 P  Pt 1 
Ri ,t   t  x100
 Pt 1 
Where, Ri,t = Returns on security i on time t
Pt = Price of the security at time t
Pt-1 = Price at time t –1
b) Market Returns

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  P  Pt 1 
Ri ,t   t  x100
 Pt 1 

Where, Rm,t = Returns on market sensex m on time t

Pt = Price of the market sensexat time t
Pt-1 = Price at time t –1

1) Abnormal Returns

In finance an abnormal return is the difference between the actual return of a security and the
expected return. Abnormal returns are sometime triggered by “events” Events can include
mergers, dividend announcements, company earnings announcements, interest rate increases etc.
All which can contribute to an abnormal return. There are 3 methods commonly used for
estimating abnormal returns namely mean adjusted returns, risk adjusted return. In this study the
abnormal return is excess of actual return from the market index.

The abnormal returns for company j on day t were calculated as:

Abnormal return = Actual Return – Expected Return

AR(it)=R(it)-R(mt)

AR(it)=Abnormal returns on stock i at time t

R(it)=Actual return on stock i at time

R(mt)= Actual return on Market Sensex m

2) Cumulative Abnormal Returns

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 Cumulative abnormal in stocks, the sum of all the differences between the and the actual
returns up to a given point in time. Since the expected return is computed by an asset pricing
model , the cumulative abnormal return may be used to determine how accurate the model is.
More often, it is used to investigate the affect extraneous events have on stock price
i
CARt   ARit
t 1

CAR(it) = cumulative abnormal returns for T th period

AR(it) = Abnormal returns of “tth period

3) Descriptive Statistics

 Mean

Mean is calculated by adding the values of all observations and dividing the total by number of
observations.

A = average (or arithmetic mean)

n = the number of terms (e.g., the number of items or numbers being averaged)

x1 = the value of each individual item in the list of numbers being averaged

 Median

A median is a value in the middle of the distribution, dividing the distribution in such a way that
there are an equal numbers of values above and below the median. Median is non-algebraic, as
its calculation requires that the values be ordered, which requires comparison of logical nature.

 Standard deviation

21
Standard deviation is also known as root mean square deviation for the reason that it is square
root of the mean of the squared deviation from the arithmetic mean. The standard deviation
measures the absolute dispersion.

 Skewness

Skewness is a measure of the degree of asymmetry of a distribution. If the left tail is more
pronounced than the right tail, the function is said to have negative skewness. If the reserve is
true, it has positive skewness. If the two are equal, it has zero skewness.

𝐄[(𝐗 − 𝛍)]𝟑
𝑺𝑲𝑬𝑾(𝑿) =
𝛔𝟑

 Kurtosis

Kurtosis is the degree of peak of a distribution, defined as a normalized form of the fourth central
movement µ4 of a distribution. There are several flavours of kurtosis commonly encountered,
including the kurtosis proper, denotedβ2 or α4.

2.8 Limitations of the study

22
  The study is confined to only Bank listed on CNXBANK
 As the study is based mainly on secondary data.
 All limitations associated with various tools like , AR, CAR analysis, Simple Regression
Analysis, which are widely used as techniques to analyze and interpret data, are
applicable to this study also.

CHAPTER SCHEME OF THE STUDY

23
Chapter-I

If deals with introduction, meaning of Monetary Policy, Objective Of Monetary Policy,

RBI Annual Monetary Policy, Terms, CNX BANK.

Chapter-II

This chapter provides Review of Literature and design of the study. The design of the study
includes Statement of the Problem, Objective of the Study, Hypothesis of the Study,
Methodology of the Study, Sample Selection, Source of the Data, Period of Study and Tools
used for Analysis.

Chapter-III

This chapter includes this analyse of Descriptive Statistics and AR and CAR for Monetary Policy
Announcement.

Chapter-IV

The Present evaluates the Simple Regression during Pre and Post Monetary Policy
Announcement of the study Period.

Chapter-V

Summary of the major Findings, Suggestions and Conclusion are given in this Chapter.

SECTION A

24
The measures that describe the data set are measures of central tendency and measures of
variability or dispersion measures of central tendency include the mean, median while measures
of variability include the standard deviation or variance, the minimum and maximum variables,
kurtosis and skewness.

The analysis of Descriptive Statistics mainly focuses on daily share price Returns of
select Sample Banks during 26.11.2012 to 09.01.2013.

1. The Descriptive statistics for share price Returns of sample Private Banks
during pre Monetary Policy announcement period.
2. The Descriptive statistics for share price Returns of sample Private Banks
during post Monetary Policy announcement period.
3. The Descriptive statistics for share price Returns of sample Public Banks
during pre Monetary Policy announcement period.
4. The Descriptive statistics for share price Returns of sample Public Banks
during post Monetary Policy announcement period.

Table - 3.1

25
 Results of Descriptive Statistics for Share Price Returns of Sample Private Bank during
Pre Monetary Policy Announcement Period

NAME OF THE SAMPLE BANK Mean Median Std. Dev. Skewness Kurtosis

HDFC BANK 0.003302 -0.00014 0.01537 0.251039 2.596323

ICICI BANK 0.008792 0.007205 0.013364 1.088976 4.709226

AXIS BANK 0.006004 0.004683 0.012518 -0.87921 3.95807

KOTAK MAHENDHIRA BANK 0.004332 0.003011 0.01378 0.354702 1.835017

Source: Prowess Data Base and Computed E-Views

Table -3.1 reveals that the descriptive statistics for Share price returns of selected sample
Banks from CNX BANK INDEX during the announcement of monetary policy. It is clearly
observed from the table provided the sample Banks from the CNX BANK INDEX were
given positive return. With reference to standard deviation, Private sector banks are given
more risk to compare than return during the pre period of monitory policy announcement.
The co efficient of skewness should be equal to zero thus table displayed that the sample
Banks returns recorded positive skewnwss value except Axis Bank , it indicated that the
probability of getting more Positive returns and less negative returns. The value of kurtosis
was high in selected CNX BANK INDEX which was greater than significant level. It has
heavier tail than standard normal distribution .So we concluded that the returns of sample
Banks were not normally distributed. The frequency curve was more peaked than normal
curve and the curve was leptokurtic. Thus overall analysis returns of sample public and
private banking sector provided positive returns due to Monetary Policy announcement.

Table - 3.2

26
 Results of Descriptive Statistics for Share Price Returns of Sample Private Bank during
Post Monetary Policy Announcement Period

NAME OF THE SAMPLE BANK Mean Median Std. Dev. Skewness Kurtosis

HDFC BANK -0.00084 -0.00029 0.008365 0.29528 3.166333

ICICI BANK 0.001803 -0.00021 0.010409 0.609986 2.745473

AXIS BANK -0.00021 -0.00221 0.009723 0.402324 2.174017

KOTAK MAHENDHIRA BANK -0.00149 -0.00138 0.007248 -0.61247 3.58233

Source: Prowess Data Base and Computed E-Views

Table -3.2 exposes that the descriptive statistics of returns of selected sample Banks from CNX
BANK INDEX during the announcement of monetary policy. It is clearly observed from the
table provided the sample Banks from the CNX BANK INDEX were given negative returns
except ICICI Bank. With reference to standard deviation, Private sector banks are given more
risk to compare than return during the post period of monitory policy announcement. The co
efficient of skewness should be equal to zero thus table displayed that the sample Banks returns
recorded positive skewnwss value except Kodak Mahendhira Bank, it indicated that the
probability of getting more Positive returns and less negative returns.

Table - 3.3

27
 Results of Descriptive Statistics for Share Price Returns of Sample Public Bank during
Pre Monetary Policy Announcement Period

NAME OF THE SAMPLE BANK Mean Median Std. Dev. Skewness Kurtosis

SBI BANK 0.008331 0.011053 0.010491 -0.64133 2.72256

BANK OF BARODA 0.010639 0.008738 0.013811 0.486572 2.248254

PNB BANK 0.009519 0.01075 0.013186 -0.00293 2.017956

CANARA BANK 0.007314 0.010869 0.017814 0.088044 3.146749

Source: Prowess Data Base and Computed E-Views

Table -3.3 demonstrates that the descriptive statistics of returns of selected sample Banks from
the CNX BANK INDEX during the announcement of monetary policy. It is clearly observed
from the table provided the sample Banks from the CNX BANK INDEX were given positive
return. With reference to standard deviation, Public sector banks are given more risk to compare
than return during the pre period of monitory policy announcement. The co efficient of skewness
should be equal to zero thus table displayed that the sample Banks returns recorded equally.

28
 Table - 3.4

Results of Descriptive Statistics for Share Price Returns of Sample Public Bank during
Post Monetary Policy Announcement Period

NAME OF THE SAMPLE BANK Mean Median Std. Dev. Skewness Kurtosis

SBI BANK 0.004089 0.006091 0.009707 -0.87532 3.565356

BANK OF BARODA 0.00157 0.004517 0.01007 -0.29952 2.632236

PNB BANK 0.003368 0.001897 0.014342 0.335368 2.872535

CANARA BANK 0.005285 0.007271 0.015622 0.111773 2.811035

Source: Prowess Data Base and Computed E-Views

Table -3.4 demonstrates that the descriptive statistics of returns of selected sample Banks from
CNX BANK INDEX during the announcement of Monetary Policy. It is clearly observed from
the table provided the sample Banks from the CNX BANK INDEX were given positive return.
With reference to standard deviation, Public sector banks are given more risk to compare than
return during the post period of monitory policy announcement. The co efficient of skewness
should be equal to zero thus table displayed that the sample Banks returns recorded equally.

SECTION-B

29
To study the significant Reaction of share prices of sample Banks during pre and post Monetary
Announcement are tested with the help of AR and CAR models from this purpose of study he
present chapter is divided into two sections.

A. Analysis of Abnormal Returns and cumulative Abnormal Return for sample Private Banks
during Monetary Policy Announcement period.
a) HDFC BANK
b) ICICI BANK
c) AXIS BANK
d) KOTAK MAHINDHRA BANK
B. Analysis of Abnormal Returns and cumulative Abnormal Return for sample Public Banks
during Monetary Policy Announcement period.
a) STATE BANK OF INDIA
b) BANK OF BARODA
c) PUNJAB NATIONAL BANK
d) CANARA BANK

Table - 3.5
Results of AR, CAR for HDFC Bank

30
 Days AR CAR
-15 0.0082 0.0082
-14 0.0082 0.0165
-13 -0.0003 0.0161
-12 -0.008 0.0082
-11 -0.02 -0.012
-10 -0.01 -0.022
-9 0.0039 -0.018
-8 -0.009 -0.027
-7 0.0028 -0.024
-6 -0.002 -0.026
-5 -0.0001 -0.026
-4 0.0078 -0.018
-3 -0.001 -0.019
-2 -0.016 -0.035
-1 -0.018 -0.053
0 -0.005 -0.058
1 0.015 -0.043
2 -0.005 -0.048
3 0.0029 -0.045
4 -0.00006 -0.045
5 -0.007 -0.052
6 0.0013 -0.051
7 -0.003 -0.054
8 0.0001 -0.054
9 -0.006 -0.06
10 -0.006 -0.066
11 -0.005 -0.071
12 -0.007 -0.078
13 -0.01 -0.088
14 0.0017 -0.086
15 -0.004 -0.09
Source: Prowess Data Base and Computed Excel

Table - 3.5 shows the Results of Abnormal Returns and Cumulative Abnormal Returns during
the Monetary Policy Announcement of HDFC Bank Ltd in December 2012. It is understood that

31
from the Table - 3.5, the 15 days period prior to the announcement of the Monetary policy. The
Abnormal Returns and CARs have showed Negative values a day before the announcement, the
AR was -0.0018 and the CAR was -0.053, which indicates that the share price of HDFC Bank
LTD registered a highest Negative value of -0.02 as Abnormal Return on -11th day and the CAR
recorded a highest Negative value of -0.058 on the day of Announcement of Monetary policy.
The highest positive value to AR was recorded on both 14th and 15th day prior to announcement
(0.0082) and the highest positive value of CAR was registered on -14th day (0.0165). During the
15 days period after the announcement of the Monetary policy, the Lowest Negative value of
AR and CAR were Recorded on 7th day (-0.003) and 1st day for CAR (-0.043) respectively. The
Higher positive value of AR was recorded on 0.015 on the very 1st day after the announcement of
the monetary policy.
From the overall analysis of the table the positive AR values were registered on 1 st, 3rd, 6th, 8th
and 14th days during the post announcement period. Investor who had sold their HDFC shares
on these days would have Reasonable profits on their Investment.

Figure - 3.1

32
 AR, CAR for HDFC Bank

Source: Computed from Table 3.5

Figure - 3.1 shows the curve of abnormal returns (AR) and (CAR) of share prices for Monetary
Policy announcements. The curve of AR shows the fluctuations trend during the pre and post
announcement period in the 30 days window. Right form Monetary Policy announcement day
the curve stimulated upwards sharply till the days (1, 3, 6, 8 and 14). Shows the Results of the
CAR for Monetary Announcement is given in the form of curve. The curve indicates there is no
positive return.

Table - 3.6

33
 Results of AR, CAR for ICICI Bank

Days AR CAR
-15 -0.0041 -0.0041
-14 -0.0041 -0.0082
-13 0.01668 0.00851
-12 0.00284 0.01135
-11 0.00676 0.0181
-10 0.00767 0.02578
-9 -0.0065 0.01928
-8 0.00229 0.02157
-7 0.00162 0.02319
-6 -0.0105 0.01264
-5 0.00407 0.01671
-4 -0.005 0.01173
-3 0.00985 0.02159
-2 0.00051 0.0221
-1 0.00684 0.02894
0 0.00024 0.02918
1 -0.0116 0.01762
2 0.00269 0.02031
3 -0.00009 0.02022
4 -0.0024 0.01786
5 0.01087 0.02874
6 -0.0091 0.01964
7 0.0046 0.02424
8 -0.0042 0.02006
9 0.00327 0.02333
10 0.0029 0.02623
11 -0.001 0.02525
12 0.00807 0.03332
13 0.00596 0.03928
14 -0.0035 0.03576
15 0.00135 0.03711
Source: Prowess Data Base and Computed Excel

34
Table - 3.6 shows the Results of Abnormal Returns and Cumulative Abnormal Returns during
the Monetary Policy Announcement of ICICI Bank Ltd in December 2012. It is understood that
from the Table- 3.6, the 15 days period prior to the announcement of the Monetary policy. The
Abnormal Returns and CARs have showed Negative values a day before the announcement, the
AR was -0.0105 and the CAR was -0.008, which indicates that the share price of ICICI Bank on
the day of Announcement of Monetary policy. The highest positive value to AR was recorded
on both -13th prior to announcement (0.01668) and the highest positive value of CAR was
registered on -1st day (0.028). During the 15 days period after the announcement of the
Monetary policy, the Lowest Negative value of AR and CAR were Recorded on 1th day (-
0.0116) and CAR there is no Negative Value. The Highest positive value of AR was recorded
on 0.008 on the very 12th day after the announcement of the monetary policy.
From the overall analysis of the table the positive AR values were registered on 2nd, 5th, 7th, 9th,
10th, 12th, and 13th days during the post announcement period. Investor who had sold their ICICI
shares on these days would have Reasonable profits on their Investment.

35
 Figure - 3.2
AR, CAR for ICICI Bank

Source: Computed from Table 3.6

Figure - 3.2 shows the curve of abnormal returns (AR) and (CAR) of share prices for Monetary
Policy announcements. The curve of AR shows the fluctuations trend during the pre and post
announcement period in the 30 days window. Right form Monetary Policy announcement day
the curve stimulated upwards sharply till the days (2, 5, 7, 9, 10, 12, and 13). Shows the Results
of the CAR for Capture the Announcement is given in the form of curve. The curve indicates
there is no negative return on post Monetary Policy announcement period.

36
 Table - 3.7
Results of AR, CAR for AXIS Bank

Days AR CAR
-15 -0.0005 -0.0005
-14 -0.0005 -0.001
-13 -0.0129 -0.0139
-12 -0.0064 -0.0203
-11 0.00582 -0.0144
-10 -0.0073 -0.0217
-9 0.00259 -0.0192
-8 0.00997 -0.0092
-7 -0.0211 -0.0303
-6 -0.0059 -0.0362
-5 0.00492 -0.0313
-4 0.0042 -0.0271
-3 0.0019 -0.0252
-2 0.00783 -0.0173
-1 0.00446 -0.0129
0 -0.0078 -0.0206
1 -0.0168 -0.0374
2 -0.0104 -0.0478
3 0.01583 -0.032
4 0.01585 -0.0161
5 -0.0061 -0.0223
6 0.01068 -0.0116
7 -0.0034 -0.015
8 -0.0035 -0.0185
9 -0.0098 -0.0283
10 0.00713 -0.0211
11 0.00291 -0.0182
12 -0.0087 -0.0269
13 0.00174 -0.0252
14 -0.0105 -0.0357
15 -0.0073 -0.0429
Source: Prowess Data Base and Computed Excel

37
Table - 3.7 shows the Results of Abnormal Returns and Cumulative Abnormal Returns during
the Monetary Policy Announcement of AXIS Bank Ltd in December 2012. It is understood that
from the Table - 3.7, the 15 days period prior to the announcement of the Monetary policy. The
Abnormal Returns and CARs have showed Negative values a day before the announcement, the
AR was -0.0129 and the CAR was -0.0362, which indicates that the share price of AXIS Bank on
the day of Announcement of Monetary policy. The highest positive value to AR was recorded
on both -8th prior to announcement (0.00997) and the value of CAR was no positive return.
During the 15 days period after the announcement of the Monetary policy, the Lowest Negative
value of AR and CAR were Recorded on 1th day (-0.0168) and 2nd day for CAR (-0.0478)
Respectively. The Higher positive value of AR was recorded on 0.01585 on the very 4th day
after the announcement of the monetary policy.
From the overall analysis of the table the positive AR values were registered on 3th, 10th, 11th,
and 13th days during the post announcement period. Investor who had sold their AXIS BANK
shares on these days would have Reasonable profits on their Investment.

38
 Figure - 3.3
AR, CAR for AXIS Bank

Source: Computed from Table 3.7

Figure - 3.3 shows the curve of abnormal returns (AR) and (CAR) of share prices for Monetary
Policy announcements. The curve of AR shows the fluctuations trend during the pre and post
announcement period in the 30 days window. Right form Monetary Policy announcement day
the curve stimulated upwards sharply till the days (3, 10, 11, and 13). Shows the Results of the
CAR for Capture the Announcement is given in the form of curve. The curve indicates there is
no positive return on post Monetary Policy announcement period.

39
 Table - 3.8
Results of AR, CAR for KOTAK MAHINDHRA Bank

Days AR CAR
-15 -0.0073 -0.0073
-14 -0.0073 -0.0146
-13 -0.0032 -0.0177
-12 0.0153 -0.0024
-11 -0.0019 -0.0043
-10 -0.0003 -0.0047
-9 -0.0185 -0.0232
-8 -0.0088 -0.032
-7 0.00327 -0.0287
-6 0.01283 -0.0159
-5 -0.0068 -0.0228
-4 -0.0066 -0.0294
-3 -0.0093 -0.0387
-2 0.00608 -0.0326
-1 -0.0053 -0.038
0 -0.0004 -0.0383
1 0.00336 -0.035
2 -0.0067 -0.0416
3 -0.0052 -0.0469
4 -0.0047 -0.0516
5 -0.0096 -0.0611
6 0.00297 -0.0582
7 0.00189 -0.0563
8 -0.0027 -0.059
9 -0.0145 -0.0734
10 0.0002 -0.0732
11 -0.0024 -0.0756
12 -0.0079 -0.0835
13 0.00347 -0.08
14 0.00529 -0.0747
15 -0.005 -0.0798
Source: Prowess Data Base and Computed Excel

Table - 3.8 shows the Results of Abnormal Returns and Cumulative Abnormal Returns during
the Monetary Policy Announcement of KOTAK MAHINDHRA Bank Ltd in December 2012. It

40
is understood that from the Table - 3.8, the 15 days period prior to the announcement of the
Monetary policy. The Abnormal Returns and CARs have showed Negative values a day before
the announcement, the AR was -0.0185 and the CAR was -0.0387, which indicates that the share
price of KOTAK MAHINDHRA Bank on the day of Announcement of Monetary policy. The
highest positive value to AR was recorded on both -6th prior to announcement (0.0128) and the
highest positive value of CAR was stimulated there is no positive return given pre and post
Monetary Policy announcement period. During the 15 days period after the announcement of the
Monetary Policy, the Lowest Negative value of AR and CAR were Recorded on 9th day (-
0.0145) and 12th day for CAR (-0.0835) respectively. The Highest positive value of AR was
recorded on 0.0052 on the very 14th day after the announcement of the monetary policy.
From the overall analysis of the table the positive AR values were registered on 1st, 3rd, 6th, 7th,
10th, 13th, and 14th days during the post announcement period. Investor who had sold their
KOTAK MAHINDHRA Bank shares on these days would have Reasonable profits on their
Investment.

Figure - 3.4

41
 AR, CAR for KOTAK MAHINDHRA Bank

Source: Computed from Table 3.8

Figure - 3.4 shows the curve of abnormal returns (AR) and (CAR) of share prices for Monetary
Policy announcements. The curve of AR shows the fluctuations trend during the pre and post
announcement period in the 30 days window. Right form Monetary Policy announcement day
the curve stimulated upwards sharply till the days (1, 6, 7, 10, 13 and 14). Shows the Results of
the CAR for Capture the Announcement is given in the form of curve. The curve indicates there
is no positive return on post Monetary Policy announcement period.

Table - 3.9
Results of AR, CAR for SBI Bank

42
 Days AR CAR
-15 -0.0084 -0.0084
-14 -0.0084 -0.0169
-13 -0.0205 -0.0374
-12 0.00412 -0.0332
-11 0.01996 -0.0133
-10 0.0083 -0.005
-9 0.0074 0.00242
-8 0.00365 0.00607
-7 0.00904 0.01511
-6 0.0003 0.01541
-5 -0.002 0.01346
-4 -0.0026 0.0109
-3 -0.0115 -0.0006
-2 0.01256 0.01194
-1 0.01009 0.02203
0 0.00805 0.03008
1 -0.0028 0.02726
2 0.00567 0.03293
3 -0.006 0.0269
4 -0.0016 0.02534
5 0.00378 0.02912
6 0.00894 0.03805
7 -0.0036 0.03447
8 0.00123 0.03569
9 0.0027 0.03839
10 -0.0005 0.03785
11 0.00923 0.04708
12 0.00537 0.05245
13 -0.0015 0.05091
14 0.00906 0.05997
15 0.01233 0.0723
Source: Prowess Data Base and Computed Excel

Table - 3.9 shows the Results of Abnormal Returns and Cumulative Abnormal Returns during
the Monetary Policy Announcement of SBI Bank Ltd in December 2012. It is understood that

43
from the Table - 3.9, the 15 days period prior to the announcement of the Monetary policy. The
Abnormal Returns and CARs have showed Negative values a day before the announcement, the
AR was -0.0115 and the CAR was -0.0374, which indicates that the share price of SBI Bank on
the day of Announcement of Monetary policy. The highest positive value to AR was recorded
on both -11th prior to announcement (0.01996) and the highest positive value of CAR was
registered on -1th day (0.02203) During the 15 days period after the announcement of the
Monetary Policy, the Lowest Negative value of AR was Recorded on 7th day (-0.0036) and CAR
given no negative value. The Highest positive value of AR was recorded on 0.0052 on the very
15th day after the announcement of the monetary policy. SBI bank was given the negative CAR
on the first 7 days of pre announcement of monitory policy and after that CAR was gradually
increased. Therefore, it indicates that share price reaction of SBI bank was going positively.

From the overall analysis of the table the positive AR values were registered on 2nd, 5th, 6th, 8th,
9th, 11th, 12th, 14th, and 15th days during the post announcement period. Investor who had sold
their SBI Bank shares on these days would have Reasonable profits on their Investment.

Figure - 3.5
AR, CAR for SBI Bank

44
 Source: Computed from Table 3.9

Figure - 3.5 shows the curve of abnormal returns (AR) and (CAR) of share prices for Monetary
Policy announcements. The curve of AR shows the fluctuations trend during the pre and post
announcement period in the 30 days window. Right form Monetary Policy announcement day
the curve stimulated upwards sharply till the days (2, 5, 6, 8, 9, 11, 12, 14, and 15). Shows the
Results of the CAR for Capture the Announcement is given in the form of curve. The curve
indicates there is no Negative return on post Monetary Policy announcement period.

Table - 3.10
Results of AR, CAR for BANK OF BARODA Bank

45
 Days AR CAR
-15 -0.0106 -0.0107
-14 -0.0107 -0.0215
-13 -0.0158 -0.0373
-12 0.0176 -0.0197
-11 -0.0014 -0.0211
-10 0.0098 -0.0113
-9 0.0071 -0.0041
-8 -0.0005 -0.0046
-7 0.0138 0.0092
-6 0.0354 0.04459
-5 -0.00009 0.0445
-4 -0.0039 0.04057
-3 -0.0009 0.03967
-2 0.0174 0.05705
-1 -0.0004 0.05665
0 0.0061 0.06277
1 0.0108 0.07356
2 -0.0007 0.0729
3 -0.0044 0.06846
4 0.0063 0.07481
5 -0.0054 0.06939
6 0.0062 0.07558
7 -0.0021 0.07343
8 0.0089 0.08235
9 0.0052 0.08757
10 -0.0059 0.08166
11 0.0029 0.08459
12 -0.0066 0.07795
13 -0.0006 0.07737
14 0.0032 0.08059
15 -0.0134 0.0672
Source: Prowess Data Base and Computed Excel

Table - 3.10 shows the Results of Abnormal Returns and Cumulative Abnormal Returns during
the Monetary Policy Announcement of BANK OF BARODA Bank Ltd in December 2012. It is
understood that from the Table 3.10, the 15 days period prior to the announcement of the

46
Monetary policy. The Abnormal Returns and CARs have showed Negative values a day before
the announcement, the AR was -0.0107 and the CAR was -0.0373, which indicates that the share
price of BANK OF BARODA Bank on the day of Announcement of Monetary policy. The
highest positive value to AR was recorded on both -6th prior to announcement (0.0354) and the
highest positive value of CAR was registered on -2nd day (0.05705). During the 15 days period
after the announcement of the Monetary Policy, the Lowest Negative value of AR and CAR
were Recorded on 15th day (-0.0134) and CAR were no negative value after the announcement of
the Monetary Policy. The Highest positive value of AR was recorded on 0.0052 on the very 14th
day after the announcement of the monetary policy. It is clearly observed from the table, Bank of
Baroda was given the negative CAR on the first 8 days of pre announcement of monitory policy
and after that CAR was gradually increased. Therefore, it indicates that share price reaction of
Bank Of Baroda bank was going positively.
From the overall analysis of the table the positive AR values were registered on 1st, 4th, 9th, and
14th days during the post announcement period. Investor who had sold their BANK OF
BARODA Bank shares on these days would have Reasonable profits on their Investment.

47
 Figure - 3.6
AR, CAR for BANK OF BARODA Bank

Source: Computed from Table 3.10

Figure - 3.6 shows the curve of abnormal returns (AR) and (CAR) of share prices for Monetary
Policy announcements. The curve of AR shows the fluctuations trend during the pre and post
announcement period in the 30 days window. Right form Monetary Policy announcement day
the curve stimulated upwards sharply till the days (1, 4, 9, and 14). Shows the Results of the
CAR for Capture the Announcement is given in the form of curve. The curve indicates there is
no Negative return on post Monetary Policy announcement period. Therefore, it indicates that
share price reaction of BANK OF BARODA Bank was going positively.

Table - 3.11
Results of AR, CAR for PUNJAB NATIONAL BANK

48
 Days AR CAR
-15 -0.0003 -0.0003
-14 -0.0003 -0.0006
-13 -0.0122 -0.0128
-12 0.00964 -0.0031
-11 0.00217 -0.0009
-10 -0.0023 -0.0032
-9 0.0267 0.02349
-8 -0.0011 0.02243
-7 0.00278 0.02521
-6 0.02101 0.04622
-5 -0.0091 0.03711
-4 -0.0016 0.03552
-3 -0.0042 0.0313
-2 0.00031 0.03161
-1 0.00823 0.03984
0 0.0041 0.04394
1 0.00537 0.04931
2 0.00208 0.05139
3 -0.0093 0.04204
4 0.00195 0.04399
5 -0.0023 0.04168
6 0.00348 0.04516
7 -0.0015 0.04362
8 0.03208 0.07571
9 0.00967 0.08537
10 0.00408 0.08946
11 -0.009 0.08049
12 0.0118 0.09229
13 0.00032 0.0926
14 -0.0088 0.08383
15 -0.0085 0.07534
Source: Prowess Data Base and Computed Excel

Table - 3.11 shows the Results of Abnormal Returns and Cumulative Abnormal Returns during
the Monetary Policy Announcement of PUNJAB NATIONAL Bank Ltd in December 2012. It is
understood that from the Table - 3.11, the 15 days period prior to the announcement of the

49
Monetary policy. The Abnormal Returns and CARs have showed Negative values a day before
the announcement, the AR was -0.0122 and the CAR was -0.0128, which indicates that the share
price of PUNJAB NATIONAL Bank on the day of Announcement of Monetary policy. The
highest positive value to AR was recorded on both -6th prior to announcement (0.02101) and the
highest positive value of CAR was registered on -6th day (0.04622). During the 15 days period
after the announcement of the Monetary policy, the Lowest Negative value of AR and CAR
were Recorded on 3rd day (-0.0093) and CAR there is no Negative Value. The Highest positive
value of AR was recorded on 0.00967 on the very 9th day after the announcement of the
monetary policy.
From the overall analysis of the table the positive AR values were registered on 1st, 2nd, 4th, 6th,
8th, 9th, 10th, 12th, and 13th days during the post announcement period. Investor who had sold
their ICICI shares on these days would have Reasonable profits on their Investment.

Figure - 3.7

50
 AR, CAR for PUNJAB NATIONAL Bank

Source: Computed from Table 3.11

Figure - 3.7 shows the curve of abnormal returns (AR) and (CAR) of share prices for Monetary
Policy announcements. The curve of AR shows the fluctuations trend during the pre and post
announcement period in the 30 days window. Right form Monetary Policy announcement day
the curve stimulated upwards sharply till the days (1, 2, 4, 6, 8, 9, 10, 12, and 13). Shows the
Results of the CAR for Capture the Announcement is given in the form of curve. The curve
indicates there is no Negative return on post Monetary Policy announcement period. Therefore, it
indicates that share price reaction of PUNJAB NATIONAL Bank was going positively.

Table - 3.12
Results of AR, CAR for CANARA BANK

51
 Days AR CAR
-15 -0.001 -0.001
-14 -0.001 -0.0021
-13 -0.0143 -0.0164
-12 0.03194 0.01557
-11 -0.0002 0.01536
-10 0.01489 0.03025
-9 -0.0099 0.02038
-8 0.00761 0.028
-7 0.00442 0.03242
-6 0.00942 0.04184
-5 -0.0045 0.03729
-4 -0.0062 0.03108
-3 -0.026 0.00504
-2 -0.0143 -0.0093
-1 0.01606 0.00677
0 -0.0008 0.00596
1 0.00579 0.01175
2 0.02423 0.03598
3 -0.0098 0.02622
4 -0.0057 0.02052
5 0.00798 0.0285
6 0.01086 0.03936
7 0.01195 0.05131
8 0.00598 0.05729
9 0.0234 0.08069
10 0.00199 0.08268
11 0.00145 0.08412
12 0.00567 0.08979
13 -0.0056 0.0842
14 -0.0151 0.06914
15 -0.003 0.06611
Source: Prowess Data Base and Computed Excel

Table - 3.12 shows the Results of Abnormal Returns and Cumulative Abnormal Returns during
the Monetary Policy Announcement if CANARA Bank Ltd in December 2012. It is understood

52
that from the Table - 3.12, the 15 days period prior to the announcement of the Monetary policy.
The Abnormal Returns and CARs have showed Negative values a day before the announcement,
the AR was -0.026 and the CAR was -0.0164, which indicates that the share price of CANARA
Bank on the day of Announcement of Monetary policy. The highest positive value to AR was
recorded on both -12th prior to announcement (0.03194) and the highest positive value of CAR
was registered on -6th day (0.04184). During the 15 days period after the announcement of the
Monetary policy, the Lowest Negative value of AR and CAR were Recorded on 14th day (-
0.0151) and CAR there is no Negative Value. The Highest positive value of AR was recorded
on 0.02423 on the very 2nd day after the announcement of the monetary policy.
From the overall analysis of the table the positive AR values were registered on 1st, 2nd, 5th, 6th,
7th, 8th, 9th, 10th, 11th, and 12th days during the post announcement period. Investor who had sold
their ICICI shares on these days would have Reasonable profits on their Investment.

Figure - 3.8
AR, CAR for CANARA Bank

53
 CANARA BANK
0.12
0.1
0.08
0.06
0.04
0.02
0
-0.02 Days -14 -12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 14

-0.04

Abnormal Return CAR

Source: Computed from Table - 3.12

Figure - 3.8 shows the curve of abnormal returns (AR) and (CAR) of share prices for Monetary
Policy announcements. The curve of AR shows the fluctuations trend during the pre and post
announcement period in the 30 days window. Right form Monetary Policy announcement day
the curve stimulated upwards sharply till the days (1, 2, 5, 6, 7, 8, 9, 10, 11, and 12,). Shows the
Results of the CAR for Capture the Announcement is given in the form of curve. The curve
indicates there is no Negative return on post Monetary Policy announcement period. Therefore, it
indicates that share price reaction of CANARA Bank was going positively.

Simple Regression Analysis

54
 A Regression is a functional relationship between the variables. If there are only two
variables in the study of Regression then it is called Simple Regression is used for two purpose,
one is to fit a model and then make a forecast, Second is to identify the Independent Variables
which explain most of the dependent variables through R2, the Coefficient of determinate. The
model a good mode if the value is at least 70% or 80% then we says that the model is a better
model. In this section a Simple Regression is carried out between the dependent and independent
variables.

In this section, a simple Regression analysis carried out between the Share Price returns
were recorded the dependent variables and Market returns were recorded in the independent
variables. The results are provided in the following tables.

a) Simple Regression Analysis of Monetary Policy Announcement during pre-

announcement period.

b) Simple Regression Analysis of Monetary Policy Announcement during post-

announcement period.

55
 Table - 4.1

Regression Results for Daily Share Price Return of State Bank of India from 26.11.2012 to
17.12.2012 during the Pre Announcement of Monetary Policy

Coefficients Standard Error t Stat P-value

Intercept
0.06487 0.076568 0.847222 0.412198
X Variable 1 -0.00002 0.00003 -0.73889 0.473103
R Square 0.040304
Adjusted R Square -0.03352
Source: Computed from Excel
Significant at 5% level

Table - 4.1 shows that adjusted R2 recorded negative values (-0.03352). This indicates that there
is no relationship between the movements of Market Returns and daily share price returns.
Coefficients (intercept) values were positively recorded as (0.06487) and X variable (Share
price returns) were recorded negatively -0.00002 which indicates that the dependent variable
(market returns) did not influence the independent variable. The P value is displayed that higher
than 5% level. Conclude that the fluctuations of market Return will not affect the company share
price. There is no significant relationship between Market Returns and Company share price
returns during the period of monetary policy announcement. Hence Null Hypotheses accepted
and Alternative Hypotheses rejected.

56
 Table - 4.2

Regression Results for Daily Share Price Return of Bank of Baroda from 26.11.2012 to
17.12.2012 during the Pre Announcement of Monetary Policy

Coefficients Standard Error t Stat P-value

Intercept
0.011433 0.07557 0.151291709 0.882068126
X Variable 1 -1.0068 0.000095 -0.01051948 0.991766548
R Square 0.0000085
Adjusted R Square -0.07691
Source: Computed from Excel
Significant at 5% level

Table - 4.2 shows that adjusted R2 recorded negative values (-0.07691). This indicates that there
is no relationship between the movements of Market Returns and daily share price returns.
Coefficients (intercept) values were positively recorded as (0.011433) and X variable (Share
price returns) was obtained negative value of -1.0068 which indicates that the dependent variable
(market returns) did not influence the independent variable. The P value is displayed that higher
than 5% level. Conclude that the fluctuations of market Return will not affect the company share
price. There is no significant relationship between Market Returns and Company share price
returns during the period of monetary policy announcement. Hence Null Hypotheses accepted
and Alternative Hypotheses rejected.

57
 Table - 4.3

Regression Results for Daily Share Price Return of Punjab National Bank from 26.11.2012
to 17.12.2012 during the Pre Announcement of Monetary Policy
Coefficients Standard Error t Stat P-value
Intercept
0.113331 0.087706 1.292165876 0.218797771
X Variable 1 -0.00013 0.000109 -1.18450503 0.257417599
R Square 0.097414
Adjusted R Square 0.027984
Source: Computed from Excel
Significant at 5% level

Table - 4.3 shows that adjusted R2 recorded positive value (0.027984). This indicates that
there is no relationship between the movements of Market Returns and daily share price returns.
Coefficients (intercept) values were positively recorded as (0.113331) and X variable (Share
price returns) was obtained negative -0.00013 which indicates that the dependent variable
(market returns) did not influence the independent variable. The P value is displayed that higher
than 5% level. Conclude that the fluctuations of market Return will not affect the company share
price. There is no significant relationship between Market Returns and Company share price
returns during the period of monetary policy announcement. Hence Null Hypotheses accepted
and Alternative Hypotheses rejected.

58
 Table - 4.4

Regression Results for Daily Share Price Return of CANARA Bank from 26.11.2012 to
17.12.2012 during the Pre announcement of Monetary Policy

Coefficients Standard Error t Stat P-value

Intercept
0.123746 0.133259392 0.928613473 0.370011
X Variable 1 -0.00025 0.000285955 -0.87425745 0.397842
R Square 0.055529
Adjusted R Square -0.01712
Source: Computed from Excel
Significant at 5% level

Table - 4.4 shows that adjusted R2 recorded negative values (-0.01712). This indicates
that there is no relationship between the movements of Market Reruns and daily share price
returns. Coefficients (intercept) values were positively recorded as (0.123746) and X variable
(Share price returns) was recorded negative value -0.00025 which indicates that the dependent
variable (market returns) did not influence the independent variable. The P value is displayed
that higher than 5% level. Conclude that the fluctuations of market Return will not affect the
company share price. There is no significant relationship between Market Returns and Company
share price returns during the period of monetary policy announcement. Hence Null Hypotheses
accepted and Alternative Hypotheses rejected.

59
 Table - 4.5

Regression Results for Daily share price return of HDFC Bank from 26.11.2012 to
17.12.2012 during the Pre announcement of Monetary Policy
Coefficients Standard Error t Stat P-value
Intercept
0.122934 0.288392 0.426272 0.676883
X Variable 1 -0.00017 0.000419 -0.41486 0.685006
R Square 0.013066
Adjusted R Square -0.06285
Source: Computed from Excel
Significant at 5% level

Table - 4.5 shows that adjusted R2 recorded negative values (-0.06285). This indicates
that there is no relationship between the movements of Market Returns and daily share price
returns. Coefficients (intercept) values were positively recorded as (0.122934) and X variable
(Share price returns) was obtained negative value -0.00017 which indicates that the dependent
variable (market returns) did not influence the independent variable. The P value is displayed
that hig6her than 5% level. Conclude that the fluctuations of market Return will not affect the
company share price. There is no significant relationship between Market Returns and Company
share price returns during the period of monetary policy announcement. Hence Null Hypotheses
accepted and Alternative Hypotheses rejected.

60
 Table - 4.6

Regression Results for Daily Share Price Return of ICICI Bank from 26.11.2012 to
17.12.2012 during the Pre announcement of Monetary Policy
Coefficients Standard Error t Stat P-value
Intercept
0.165867 0.103965 1.595408 0.134634
X Variable 1 -0.00014 0.0000939 -1.5116 0.154557
R Square 0.14949
Adjusted R Square 0.084066
Source: Computed from Excel
Significant at 5% level

Table - 4.6 shows that adjusted R2 recorded positive values (0.084066). This indicates
that there is no relationship between the movements of Market Reruns and daily share price
returns. Coefficients (intercept) values were positively recorded as (0.165867) and X variable
(Share price returns) was obtained negative value -0.00014 which indicates that the dependent
variable (market returns) did not influence the independent variable. The P value is displayed
that higher than 5% level. Conclude that the fluctuations of market Return will not affect the
company share price.There is no significant relationship between Market Returns and Company
share price returns during the period of monetary policy announcement. Hence Null Hypotheses
accepted and Alternative Hypotheses rejected.

61
 Table - 4.7

Regression Results for Daily share Price Return of AXIS Bank from 26.11.2012 to
17.12.2012 during the pre announcement of Monetary Policy
Coefficients Standard Error t Stat P-value
Intercept
0.07421 0.185058 0.401009 0.694927
X Variable 1 -0.000051 0.00014 -0.36863 0.718341
R Square 0.010345
Adjusted R Square -0.06578
Source: Computed from Excel
Significant at 5% level

Table - 4.7 shows that adjusted R2 recorded negative values (-0.06578). This indicates
that there is no relationship between the movements of Market Returns and daily share price
returns. Coefficients (intercept) values were positively recorded as (0.07421) and X variable
(Share price returns) was obtained negative value -0.000051which indicates that the dependent
variable (market returns) did not influence the independent variable. The P value is displayed
that higher than 5% level. Conclude that the fluctuations of market Return will not affect the
company share price. There is no significant relationship between Market Returns and Company
share price returns during the period of monetary policy announcement. Hence Null Hypotheses
accepted and Alternative Hypotheses rejected.

62
 Table - 4.8

Regression Results for Daily Share Price Return of KODAK MAHENDHIRA Bank from
26.11.2012 to 17.12.2012 during the Pre announcement of Monetary Policy
Coefficients Standard Error T Stat P-value
Intercept
0.082616 0.191249 0.431984 0.672832
X Variable 1 -0.00012 0.00029 -0.40941 0.688905
R Square 0.012729
Adjusted R Square -0.06321
Source: Computed from Excel
Significant at 5% level

Table - 4.8 shows that adjusted R2 recorded negative values (-0.06312). This indicates that there
is no relationship between the movements of Market Returns and daily share price returns.
Coefficients (intercept) values were positively recorded as (0.082616) and X variable (Share
price returns) was obtained negative value -0.00012 which indicates that the dependent variable
(market returns) did not influence the independent variable. The P value is displayed that higher
than 5% level. Conclude that the fluctuations of market Return will not affect the company share
price. There is no significant relationship between Market Returns and Company share price
returns during the period of monetary policy announcement. Hence Null Hypotheses accepted
and Alternative Hypotheses rejected.

63
 Table - 4.9

Regression Results for Daily share price return of HDFC Bank from 19.12.2012 to
09.01.2013 during the Post announcement of Monetary Policy
Coefficients Standard Error t Stat P-value
Intercept
-0.50964 0.203541 -2.50387 0.026395
X Variable 1 0.00075 0.0003 2.499855 0.026596
R Square 0.32465
Adjusted R Square 0.2727
Source: Computed from Excel
Significant at 5% level

Table - 4.9 shows that adjusted R2 recorded positive value (0.2727). This indicates that
there is the relationship between the movements of Market Returns and daily share price returns.
Coefficients (intercept) values were negatively recorded as (-0.50964) and X variable (Share
price returns) were obtained positive value 0.00075 which indicates that the dependent variable
(market returns) did influence the independent variable. The P value is displayed that lower than
5% level. Conclude that the fluctuations of market return will affect the company share price.
There is significant relationship between Market Returns and Company share price returns
during the period of monetary policy announcement. Hence Alternative Hypotheses accepted and
Null Hypotheses rejected.

64
 Table - 4.10

Regression Results for Daily Share Price Return of ICICI Bank from 19.12.2012 to
09.01.2013 during the Post announcement of Monetary Policy
Coefficients Standard Error t Stat P-value
Intercept
-0.19603 0.140563 -1.39457 0.04652
X Variable 1 0.000171 0.000122 1.407637 0.052698
R Square 0.13226
Adjusted R Square 0.065511
Source: Computed from Excel
Significant at 5% level

Table -4.10 shows that adjusted R2 recorded positive values (0.065511). This indicates
that there is relationship between the movements of Market Returns and daily share price returns.
Coefficients (intercept) values were negatively recorded as (-0.19603) and X variable (Share
price returns) were recorded that positively 0.000171 which indicates that the dependent variable
(market returns) did influence the independent variable. The P value is displayed that lower than
5% level. Conclude that the fluctuations of market Return will affect the company share price.
As per the Results of Regression Analysis of the ICICI Bank only given significant at 5% level.
There is significant relationship between Market Returns and Company share price returns
during the period of monetary policy announcement. Hence Alternative Hypotheses accepted and
Null Hypotheses rejected.

65
 Table - 4.11

Regression Results for Daily share price return of AXIS Bank from 19.12.2012 to
09.01.2013 during the post announcement of Monetary Policy
Coefficients Standard Error t Stat P-value
Intercept
-0.1954 0.163224 -1.19711 0.252638
X Variable 1 0.000144 0.00012 1.195948 0.253076
R Square 0.099117
Adjusted R Square 0.029819
Source: Computed from Excel
Significant at 5% level

Table - 4.11 shows that adjusted R2 recorded positive values (0.029819). This indicates
that there is no relationship between the movements of Market Returns and daily share price
returns. Coefficients (intercept) values were negatively recorded as (-0.1954) and X variable
(Share price returns) were obtained positive value 0.000144 which indicates that the dependent
variable (market returns) did not influence the independent variable. Because the P value is
displayed that higher than 5% level. Conclude that the fluctuations of market Return will not
affect the company share price. There is no significant relationship between Market Returns and
Company share price returns during the period of monetary policy announcement. Hence Null
Hypotheses accepted and Alternative Hypotheses rejected.

66
 Table - 4.12

Regression Results for Daily Share Price Return of KODAK MAHENDHIRA Bank from
19.12.2012 to 09.01.2013 during the Post announcement of Monetary Policy
Coefficients Standard Error t Stat P-value
Intercept
-0.23585 0.219355 -1.07519 0.301842
X Variable 1 0.000359 0.000336 1.068442 0.30476
R Square 0.080724
Adjusted R Square 0.010011
Source: Computed from Excel
Significant at 5% level

Table - 4.12 shows that adjusted R2 recorded positively values (0.010011). This indicates
that there is no relationship between the movements of Market Returns and daily share price
returns. Coefficients (intercept) values were negatively recorded as (-0.23585) and X variable
(Share price returns) were obtained positive value 0.000359 which indicates that the dependent
variable (market returns) did not influence the independent variable. Because the P value is
displayed that higher than 5% level. Conclude that the fluctuations of market Return will not
affect the company share price. There is no significant relationship between Market Returns and
Company share price returns during the period of monetary policy announcement. Hence Null
Hypotheses accepted and Alternative Hypotheses rejected.

67
 Table - 4.13

Regression Results for Daily Share Price Return of State Bank of India from 19.12.2012 to
09.01.2013 during the Post announcement of Monetary Policy
Coefficients Standard Error t Stat P-value
Intercept
-0.16977 0.095987 -1.7687 0.010386
X Variable 1 0.0000719 0.0000397 1.811832 0.093166
R Square 0.201608
Adjusted R Square 0.140194
Source: Computed from Excel
Significant at 5% level

Table -4.13 shows that adjusted R2 recorded positive values (0.140194). This indicates
that there is relationship between the movements of Market Returns and daily share price returns.
Coefficients (intercept) values were negatively recorded as (-0.16977) and X variable (Share
price returns) were obtained positive value 0.000071 which indicates that the dependent variable
(market returns) did influence the independent variable. The P value is displayed that lower than
5% level. Conclude that the fluctuations of market Return will affect the company share price.
There is significant relationship between Market Returns and Company share price returns
during the period of monetary policy announcement. Hence Alternative Hypotheses accepted and
Null Hypotheses rejected.

68
 Table - 4.14

Regression Results for Daily Share Price Return of Bank of Baroda from 19.12.2012 to
09.01.2013 during the Post announcement of Monetary Policy
Coefficients Standard Error t Stat P-value
Intercept
-0.11919 0.160303 -0.74352 0.47039
X Variable 1 0.000139 0.000185 0.753419 0.464625
R Square 0.041838
Adjusted R Square -0.03187
Source: Computed from Excel
Significant at 5% level

Table - 4.14 shows that adjusted R2 recorded negative values (-0.03187). This indicates
that there is no relationship between the movements of Market Returns and daily share price
returns. Coefficients (intercept) values were negatively recorded as (-0.11919) and X variable
(Share price returns) were obtained positive 0.000139 which indicates that the dependent
variable (market returns) did not influence the independent variable. The P value is displayed
that higher than 5% level. Conclude that the fluctuations of market Return will not affect the
company share price. There is no significant relationship between Market Returns and Company
share price returns during the period of monetary policy announcement. Hence Null Hypotheses
accepted and Alternative Hypotheses rejected.

69
 Table 4.15

Regression Results for Daily Share Price Return of Punjab National Bank from 19.12.2012
to 09.01.2013 during the Post announcement of Monetary Policy
Coefficients Standard Error t Stat P-value
Intercept
-0.07802018 0.117713 -0.6628 0.51904
X Variable 1 0.000093494 0.000135 0.691767 0.501253
R Square 0.035503928
Adjusted R Square -0.03868808
Source: Computed from Excel
Significant at 5% level

Table - 4.15 shows that adjusted R2 recorded negative values (-0.03868). This indicates
that there is no relationship between the movements of Market Returns and daily share price
returns. Coefficients (intercept) values were negatively recorded as (-0.07802) and X variable
(Share price returns) were obtained positive value 0.000093which indicates that the dependent
variable (market returns) did not influence the independent variable. The P value is displayed
that higher than 5% level. Conclude that the fluctuations of market Return will not affect the
company share price. There is no significant relationship between Market Returns and Company
share price returns during the period of monetary policy announcement. Hence Null Hypotheses
accepted and Alternative Hypotheses rejected.

Table - 4.16

70
 Regression Results for Daily Share Price Return of CANARA Bank from 19.12.2012 to
09.01.2013 during the Post announcement of Monetary Policy

Coefficients Standard Error t Stat P-value

Intercept
-0.01855 0.112022 -0.16557 0.87104
X Variable 1 0.0000476 0.000224 0.212895 0.834711
R Square 0.003474
Adjusted R Square -0.07318
Source: Computed from Excel
Significant at 5% level

Table - 4.16 shows that adjusted R2 recorded negative values (-0.07318). This indicates
that there is no relationship between the movements of Market Returns and daily share price
returns. Coefficients (intercept) values were negatively recorded as (0.01855) and X variable
(Share price returns) was obtained positive value 0.00047 which indicates that the dependent
variable (market returns) did not influence the independent variable. The P value is displayed
that higher than 5% level. Conclude that the fluctuations of market Return will not affect the
company share price. There is no significant relationship between Market Returns and Company
share price returns during the period of monetary policy announcement. Hence Null Hypotheses
accepted and Alternative Hypotheses rejected.

Findings of the Study

The followings are the major findings of the study.

71
1. The descriptive Statistics was used to understand the impact of monetary policy on the
Indian banking sector listed on the CNX BANK INDEX.
2. From the Pre announcement on Private Banks, summary Statistics was clearly explains
the Return value (Mean) at ICICI Bank were recorded (0.008792) the higher than the
other selected sample, at the same time the Mean value of HDFC Bank (0.03302) was
recorded lowest Performed Bank as per Return value.
3. The Pre announcement on Private Banks, the risk was identify by the help Standard
Deviation value of HDFC Bank (0.01537) was highly risked Bank of announcement at
time save the value Axis Bank (0.01258) has recorded lowest risk than the bank.
4. From the Post announcement on Private Banks, summary Statistics was clearly explains
the Return value (Mean) at ICICI Bank were recorded (0.000183) the higher than the
other selected sample, at the same time the Mean value of Kotak Mahendhira Bank (-
0.00149) was recorded lowest Performed Bank as per Return value.
5. The Post announcement on Private Banks, the risk was identify by the help Standard
Deviation value of ICICI Bank (0.01537) was highly risked Bank of announcement at
time save the value KOTAK MAHENDHIRA BANK (0.007248) has recorded lowest
risk than the bank.
6. From the Pre announcement on Public Banks, summary Statistics was clearly explains
the Return value (Mean) at BANK OF BARODA were recorded (0.0.10639) the higher
than the other selected sample, at the same time the Mean value of CANARA Bank
(0.007314) was recorded lowest Performed Bank as per Return value.
7. The Pre announcement on Public Bank, the risk was identify by the help Standard
Deviation value of CANARA Bank (0.017814) was highly risked Bank of
announcement at time save the value SBI Bank (0.010491) has recorded lowest risk than
the bank.

8. From the Post announcement on Public Banks, summary Statistics was clearly explains
the Return value (Mean) at CANARA Bank were recorded (0.005285) the higher than
the other selected sample, at the same time the Mean value of BANK OF BARODA
(0.00157) was recorded lowest Performed Bank as per Return value.

72
 9. The Post announcement on Public Banks, the risk was identify by the help Standard
Deviation value of CANARA Bank (0.01622) was highly risked Bank of announcement
at time save the values SBI BANK (0.009707) has recorded lowest risk than the bank.
10. The AR and CAR of the sample banking companies has been increased positively day of
Announcement of Monetary Policy.
11. As per Abnormal and Cumulative Abnormal Return was explains the returns of Private
Bank, ICICI Bank was highly significant and Good performed Bank of both Pre and
Post Announcement why because the value was recorded high return receiver by the
investor.
12. As per Abnormal and Cumulative Abnormal Return was explains the returns of Public
Bank, SBI Bank was highly significant and Good performed Bank of both Pre and Post
Announcement why because the value was recorded high return receiver by the investor.
At the same time the next best bank PUNJAB NATIONAL BANK.
13. The analysis by Simple Regression Model provides there no relationship at Market
return of Share Price CNX Bank Index resulting from the Monetary Policy.
14. All the Banks was significant P value at 5% and 10% but only one Bank (PUNJAB
NATIONAL BANK) was significant at below 25% significant level.

Suggestion of the study

73
  According to the study all banks to not enjoy positive return during the study period.
Some banks suffered negative return and Investors should be very careful in making their
Investment in banking sector.

 Before investing in the stock market, the investors should have knowledge about RBI
Announcements.

 The important suggestions are given below. The Strategy of buy and hold is suggested
however, the equity investor looks for higher Returns, given the higher risk status. In
order to minimize the Investors risk, Necessary step should be taken.

 There was no uniformity in the weekly returns of Daily share price, High Negative
Returns. Hence the market Regulator should take appropriate steps to reduce their gap.

 The investor can invest more in the banking Service at the time of Monetary Policy
announcement Because the comparison between the impact of Reverse Repo Rate and
CRR Announcements reveals the fact that there was much influence on the share price
movements by Reverse Repo Rate than that of CRR.

 The investor may not take immediate investment decision after the Announcement of
Monetary policy announcement, because it recorded negative CAR during Pre and Post
Announcement Period.

 The Investor before Investing in Stock Market has to decide well in advance the type of
banks in which the Investment has to be made.

 The Banking service with good Image of disclosure can be attractive for Investors to
Invest in the Stock Market in India.

Conclusion

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 Every year RBI changes the CRR, SLR, Repo Rate etc., to control the money supply of
the country. This study is an effort to understand whether Reverse Repo Rate and Cash Reserve
Ratio Announcements hold any informational content for the stock market that may lead to
changes in the stock price and to test the impact of Reverse Repo Rate and Cash Reserve Ratio
on the share price of Indian banking stocks. The results of the study showed that the security
prices reacted to the Announcements of Reverse Repo Rate and Cash Reserve Ratio. The
reaction took place for a very few days only, mostly covering days up.

The study made an attempt to examine the Stock Returns for Banking Sector on the basis
of closing price for the period between 26 Nov 2011 - 09 Jan 2013. The study investigated the
impact of CNX Bank Index by using Descriptive Statistics, AR, CAR and Regression for daily
share price return of Pre and Post of Monetary Policy for selected sample bank of both Private
and Public Bank during the study period. The result shows the return normal for the banking
services in India implies some negative return CNX Bank Index. From the result of analysis it is
understood that the various activities experience increase and decrease in the share price
movements as results of the Impact of Monetary Policy in CNX Bank Index.

REFERENCE

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ARTICLES

 Sumon Kumar Bhaumik,Vinh Dang and Ali M. Kutan (2010), “Implications of Bank

Ownership for the Credit Channel of Monetary Policy Transmission: Evidence from

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 Peter Sellin (1998), “Monetary Policy and Empirical Evidence”, Journal of Economics

and Business, vol.36, pp.1-46.

 Punita Rao (2006), “Monetary Policy: Its Impact On The Profitability Of Banks In

India”, International Business & Economics Research Journal, Vol. 5, pp.1-8.

 Antulio Bomfim.N (2000), “Pre-Announcement Effects, News, and

Volatility:Monetary Policy and the Stock Market”, International Business &

Economics Research Journal, vol.3, pp.1-33.

 Michael Ehrmann and Marcel Fratzscher (2013), “Taking Stock: Monetary Policy

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 Tianshu Zhao , Barbara Casu and Alessandra Ferrari(2009), “The impact of regulatory

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WEBSITES

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1. www.nseindia.com
2. www.ssrn.com
3. www.moneycontorl.com
4. www.rbi.india.com
5. www.yahoofinance.com
6. www.wikipedia.org
7. www.investopedia.com
8. www.ssrn.com
9. www.erojournals.com/finance.htm

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