Smaller banking institutions evince a greater connection to banks and firms than larger ones.
Authors
Wasim Ahmad, Department of Economic Sciences, Indian Institute of Technology Kanpur, 208016, India; LSE India Observatory, London School of Economics and Political Science (LSE), London, UK.
Shiv Ratan Tiwari, Department of Economic Sciences, Indian Institute of Technology Kanpur, 208016, India.
Akshay Wadhwani, Department of Economic Sciences, Indian Institute of Technology Kanpur, Kanpur 208016, UP, India.
Mohammad Azeem Khan, Assistant Professor, Jindal Global Business School, O.P. Jindal Global University, Sonipat, Haryana, India.
Stelios Bekiros, Department of Banking and Finance, FEMA, University of Malta, Msida, Malta; Department of Economics, European University Institute, Via delle Fontanelle, 18, I-50014 Florence, Italy.
Summary
This study identifies the nature and direction of unprecedented upheavals in the Indian banking sector which is linked to credit market asymmetry. A tail-driven network approach with a mixed sample of banks and firms exhibits the characteristics of the twin-balance-sheet syndrome.
We construct the networks with a degree of interconnectedness at different quantiles and identify major systemic risk emitters and receivers. Furthermore, we find a spillover of the riskiness of deep-in-debt firms to banks.
Smaller banking institutions evince a greater connection to banks and firms than larger ones. Our results are valuable for policymakers formulating financial stabilization policies and investors considering Indian markets for various opportunities.
Published in: Research in International Business and Finance
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