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Financial networks and systemic risk vulnerabilities: A tale of Indian banks |
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| Institution: | 1. Department of Economic Sciences, Indian Institute of Technology Kanpur, 208016, India;2. LSE India Observatory, London School of Economics and Political Science (LSE), London, UK;3. Department of Economic Sciences, Indian Institute of Technology Kanpur, Kanpur 208016, UP, India;4. Jindal Global Business School, O.P. Jindal Global University, India;5. Department of Banking and Finance, FEMA, University of Malta, Msida, Malta;6. Department of Economics, European University Institute, Via delle Fontanelle, 18, I-50014 Florence, Italy |
| Abstract: | 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. |
| Keywords: | Systemic Risk Financial Stability Network Approach Value at Risk CoVaR Indian Banks |
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