IDEAS home Printed from https://ideas.repec.org/a/eee/ecmode/v151y2025ics0264999325001968.html
   My bibliography  Save this article

Concentration-driven fragility in Indian banking: Evidence from sectoral exposure, earnings volatility, and asset quality

Author

Listed:
  • Zeeshan, Mohammad
  • Singh, Manish K.

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.

Suggested Citation

  • Zeeshan, Mohammad & Singh, Manish K., 2025. "Concentration-driven fragility in Indian banking: Evidence from sectoral exposure, earnings volatility, and asset quality," Economic Modelling, Elsevier, vol. 151(C).
    • Handle: RePEc:eee:ecmode:v:151:y:2025:i:c:s0264999325001968
    DOI: 10.1016/j.econmod.2025.107201
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0264999325001968
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.econmod.2025.107201?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecmode:v:151:y:2025:i:c:s0264999325001968. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/30411 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.