 Concentration-driven fragility in Indian banking: Evidence from sectoral exposure, earnings volatility, and asset qualityMohammad Zeeshan and Manish K. Singh Economic Modelling, 2025, vol. 151, issue C Abstract: This paper examines the relationship between banking sector concentration and individual bank risk in India from 1998 to 2022, using CMIE ProwessIQ data. Using a two-step system GMM estimator to account for reverse causality and persistence in risk metrics, we find that a 1%-point increase in the top five banks’ asset share reduces the z-score by 5.85% and distance-to-default by 1.77%. We identify three key mechanisms linking concentration to higher risk: (i) increased lending to cyclical sectors, (ii) heightened earnings volatility, and (iii) deterioration in asset quality. Additionally, our findings suggest that concentration is negatively associated with franchise value and market β, suggesting weaker long-term performance and investor confidence. The results provide empirical support for the concentration–fragility hypothesis and offer new evidence on the channels through which structural features of banking markets can shape risk-taking behavior in emerging economies. Keywords: Bank stability; Concentration ratio; Herfindahl–Hirschman Index; z-score; Distance-to-Default (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:151:y:2025:i:c:s0264999325001968 DOI: 10.1016/j.econmod.2025.107201 Access Statistics for this article Economic Modelling is currently edited by S. Hall and P. Pauly More articles in Economic Modelling from Elsevier |
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