Financial networks and systemic risk vulnerabilities: A tale of Indian banks

• Published in: Research in international business and finance 2023-04, Vol.65, p.101962, Article 101962
• Main Authors: Ahmad, Wasim, Tiwari, Shiv Ratan, Wadhwani, Akshay, Khan, Mohammad Azeem, Bekiros, Stelios
• Format: Article
• Language: English
• Subjects: CoVaR; Financial Stability; Indian Banks; Network Approach; Systemic Risk; Value at Risk
• ISSN: 0275-5319
• DOI: 10.1016/j.ribaf.2023.101962

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. [Display omitted] •Examines the twin-balance sheet syndrome for the Indian banking sector upheaval.•The tail-driven network model explains the high interconnectedness during the banking sector shock.•The systemic risk and financial vulnerabilities are analyzed and discussed.