Does Bank Competition Enhance or Hinder Financial Stability? Evidence from Indian Banking

Bijoy Rakshit () and Samaresh Bardhan ()
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Bijoy Rakshit: Department of Humanities and Social Sciences, Indian Institute of Technology, Ropar, Punjab, India
Samaresh Bardhan: Department of Humanities and Social Sciences, Indian Institute of Technology, Ropar, Punjab, India

Journal of Central Banking Theory and Practice, 2020, vol. 9, issue special issue, 75-102

Abstract: The primary purpose of this paper is to empirically investigate the impact of bank competition on financial stability in India. We use a dynamic panel model to examine whether an increase in bank competition hindrances financial stability of commercial banks in India over the period 1996 to 2016. Findings reveal that in India, a higher degree of bank competition is positively associated with the prevalence of non-performing loans. Additionally, the positive impact of the Lerner index on Z-score lends support to competition-fragility hypothesis. However, we argue that both the views of competition-stability and competition-fragility can coexist in a single banking system like India.

Keywords: Bank competition; Competition-Stability; Competition-Fragility; Financial Stability. (search for similar items in EconPapers)
JEL-codes: F30 G21 G38 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:cbk:journl:v:9:y:2020:i:si:p:75-102

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