Financial stability of banks in India: Does liquidity creation matter?

Gupta, Juhi; Kashiramka, Smita

doi:10.1016/j.pacfin.2020.101439

Cited by 71 publications

(66 citation statements)

References 76 publications

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“…Additionally, it has also shown that PSBs pose a higher systemic risk than the PVBs, which is also evident by the recurring recapitalization of PSBs by the government. The results corroborate the finding that PSBs are financially less stable than PVBs (Gupta and Kashiramka, 2020). Thus, the measure has shown appropriate reliability in the Indian context.…”

Section: Implications Of the Resultssupporting

confidence: 85%

“…The results further reveal that PSBs predominantly contribute to the capital shortfall in the system, with the top-five SIBs being all PSBs. Thus, these banks are more vulnerable to macroeconomic shocks as overly leveraged banks are more sensitive to turbulence (Gupta and Kashiramka, 2020). These results conform to the findings of highlighting that government-owned banks are more susceptible during the crisis vis-à-vis the PVBs.…”

Section: Discussionsupporting

confidence: 86%

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Identification of systemically important banks in India using SRISK

Gupta

Kashiramka

2021

JFRC

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Purpose Systemic risk has been a cause of concern for the bank regulatory authorities worldwide since the global financial crisis. This study aims to identify systemically important banks (SIBs) in India by using SRISK to measure the expected capital shortfall of banks in a systemic event. The sample size comprises a balanced data set of 31 listed Indian commercial banks from 2006 to 2019. Design/methodology/approach In this study, the authors have used SRISK to identify banks that have a maximum contribution to the systemic risk of the Indian banking sector. Leverage, size and long-run marginal expected shortfall (LRMES) are used to compute SRISK. Forward-looking LRMES is computed using the GJR-GARCH-dynamic conditional correlation methodology for early prediction of a bank’s contribution to systemic risk. Findings This study finds that public sector banks are more vulnerable to macroeconomic shocks owing to their capital inadequacy vis-à-vis the private sector banks. This study also emphasizes that size should not be used as a standalone factor to assess the systemic importance of a bank. Originality/value Systemic risk has attracted a lot of research interest; however, it is largely limited to the developed nations. This paper fills an important research gap in banking literature about the identification of SIBs in an emerging economy, India. As SRISK uses both balance sheet and market-based information, it can be used to complement the existing methodology used by the Reserve Bank of India to identify SIBs.

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Section: Implications Of the Resultssupporting

confidence: 85%

Section: Discussionsupporting

confidence: 86%

Identification of systemically important banks in India using SRISK

Gupta

Kashiramka

2021

JFRC

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“…More buffer means reduced bank collapse risk (Inoune et al, 2006 ). It is also possible that as a result of the economic cycle, banks maintain a procyclical buffer, reducing it during times of expansion and raising it during recessions (Alan et al 2009 ), thereby magnifying the loop and hence escalating financial stress risks (Gupta and Kashiramka, 2020 ; Nair and Anand, 2020 ). Similarly, climate risks and climate change mitigation are taken as other variables of study which are operationalized in the study model.…”

Section: Methodsmentioning

confidence: 99%

Financial stability role on climate risks, and climate change mitigation: Implications for green economic recovery

Sun

Fang

Iqbal

et al. 2022

Environ Sci Pollut Res

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As a response to the topic of how financial stability might be used to effectively finance for the mitigation of climate change and climate risks, it is important to look at the carbon risk that is still present in G-5 nations. The goal of our research is to determine the impact of financial stability on climate risk in order to effectively manage climate mitigation efforts. A technique called GMM is used to achieve this goal. Climate change mitigation was found to be substantial at 18 percent, while financial stability and carbon hazards were found significant at 21 percent, according to the conclusions of the study. Furthermore, the G-5 countries’ 19.5% correlation between financial stability and emissions drift, which raises climate change concerns, is noteworthy. In order to implement green economic recovery methods, one of the most strongly regarded approaches to mitigating climate change and ensuring long-term financial potential at the national scale, a country’s financial stability is required. The research on green economic expansion also offers the associated stakeholders with detailed policy implications on this relevance.

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“…Regarding financial regulation, Batuo et al (2018) confirmed that it can increase stability. Subsequently, authors such as Anarfo et al (2020), Damjanovic et al (2020), Gupta and Kashiramka (2020), and Igan and Mirzaei (2020) converge in their studies when they proffer that financial regulation increases bank resilience by improving asset quality, as well as inhibiting unsustainable bank credit growth and preventing financial instability. Contrarily, Anarfo et al (2020) evidenced that financial regulation reduces financial inclusion in Sub-Saharan African countries.…”

Section: Literature Reviewmentioning

confidence: 99%

“…Therefore, financial regulation, namely capital adequacy requirement, is a measure used to ensure the financial stability of banks, which reduces unsustainable bank credit growth. Several scientific studies state that financial regulation is a strong barrier to financial inclusion (Anarfo et al 2020;Gupta and Kashiramka 2020;Igan and Mirzaei 2020). Scientific studies often use indicators such as the concentration of the top five banks (C5), Panzar-Rosse H-statistic, Lerner Index, and Boone Index, to measure competitiveness (Albaity et al 2019;Goetz 2018;Owen and Pereira 2018).…”

Section: Data Descriptionmentioning

confidence: 99%

The Effect of Financial Inclusion and Competitiveness on Financial Stability: Why Financial Regulation Matters in Developing Countries?

Jungo

Madaleno

Botelho

2022

JRFM

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This study aims to assess the effect of financial inclusion and competitiveness on banks’ financial stability, considering the moderating role of financial regulation. To do so, we compare the effects of these variables in Sub-Saharan African (SSA) and Latin American and Caribbean (LAC) countries. Our results suggest that inclusion enhances bank stability in SSA and LAC countries, and financial regulation contributes to increasing financial stability in LAC countries, while we find no statistical significance in the effect of financial regulation on financial stability in SSA countries. Moreover, competitiveness negatively impacts financial stability, and financial regulation moderates the negative effect of competitiveness on financial stability in SSA and LAC countries. We also find that financial inclusion reduces credit risk in SSA countries, and for LAC countries financial inclusion increases credit risk and reduces bank profitability. Regarding the practical implications, this study shows that fostering financial inclusion in the countries under study contributes significantly to improving the welfare of households and especially to the stability of the financial system. The present study allows expanding of the scarce literature by examining the effect of financial inclusion and market structure on financial stability in two different samples, consisting of 41 countries in the SSA region and 31 countries in the LAC region, throughout 2005–2018.

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Financial stability of banks in India: Does liquidity creation matter?

Cited by 71 publications

References 76 publications

Identification of systemically important banks in India using SRISK

Identification of systemically important banks in India using SRISK

Financial stability role on climate risks, and climate change mitigation: Implications for green economic recovery

The Effect of Financial Inclusion and Competitiveness on Financial Stability: Why Financial Regulation Matters in Developing Countries?

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