Is Banking Consolidation at Odds with Financial Stability?: The Case of India
By: Chherawala, Tasneem and Sanati, Gargi
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Material type: 
BookPublisher: Economic and Political Weekly Description: 60(22), May 31, 25: p.73-80.Subject(s): consolidation, financial stability, banking sector, Indian banking systemSummary: This paper examines the nexus between consolidation and financial stability in the context of a series of restructuring mergers that have occurred in the Indian banking sector in recent years. Employing a system-GMM two-stage panel regression model and a bias-corrected random effect model for the period from March 2012 to June 2022, it concludes that mergers increase financial fragility, as measured by banks’ marginal risk contribution to systemic risk. The destabilising effect is also driven by bank-specific risk factors, standalone insolvency risk, and ownership characteristics but is neutral to bank size. Furthermore, the build-up of good-quality capital for potential loss mitigation can alleviate the adverse impact on systemic risk. The results have important implications for macro-prudential policies. - Reproduced
https://www.epw.in/journal/2025/22/money-banking-and-finance/banking-consolidation-odds-financial-stability.html
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Articles
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Indian Institute of Public Administration | Available | AR136262 |
This paper examines the nexus between consolidation and financial stability in the context of a series of restructuring mergers that have occurred in the Indian banking sector in recent years. Employing a system-GMM two-stage panel regression model and a bias-corrected random effect model for the period from March 2012 to June 2022, it concludes that mergers increase financial fragility, as measured by banks’ marginal risk contribution to systemic risk. The destabilising effect is also driven by bank-specific risk factors, standalone insolvency risk, and ownership characteristics but is neutral to bank size. Furthermore, the build-up of good-quality capital for potential loss mitigation can alleviate the adverse impact on systemic risk. The results have important implications for macro-prudential policies. - Reproduced
https://www.epw.in/journal/2025/22/money-banking-and-finance/banking-consolidation-odds-financial-stability.html
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