Systemic Risk in Indian Financial Institutions: A Probabilistic Approach

IF 2.5 Q2 ECONOMICS Asia-Pacific Financial Markets Pub Date : 2023-10-18 DOI:10.1007/s10690-023-09426-7
Subhash Karmakar, Gautam Bandyopadhyay, Jayanta Nath Mukhopadhyay
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Abstract

In this paper, we have carried out the predictions for growth or spurt in Systemic Risk across the different categories of financial institutions in India relative to the change in the market prices. We have used Bayes Theorem along with Logistic regressions to work out the actual probabilities regarding the growth in Systemic Risk with the fall in stock prices and Wilcoxon Rank sum Test to validate the robustness of the models. In this paper, we have studied the period from July 2007 to December 2020. An important feature observed was any fall in closing prices beyond 30%, is contributing for 90% growth in systemic risk. A policy implication can follow—that it is imperative to monitor a sharp decline in market prices to the tune of 30% or more by regulators to avoid a crisis. We generally presume that state ownership of Banks particularly in India generates public confidence. Our paper has been able to support the theory of public confidence wherein the Public Sector Banks are contributing less towards the growth of Systemic Risk as compared to Private Banks and NBFCs. The NBFCs are the highest contributor of the growth in systemic risk which we have differentiated from our results. So, in coming days NBFCs are to be closely monitored by the regulators and suitable regulatory measures need to be placed.

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印度金融机构的系统性风险:概率论方法
在本文中,我们对印度不同类别金融机构的系统性风险相对于市场价格变化的增长或激增进行了预测。我们使用贝叶斯定理和逻辑回归法计算出系统性风险随股票价格下跌而增长的实际概率,并使用 Wilcoxon 秩和检验法验证模型的稳健性。本文研究的时间段为 2007 年 7 月至 2020 年 12 月。观察到的一个重要特征是,任何收盘价跌幅超过 30%,都会导致系统风险增长 90%。由此可以得出一个政策含义--监管机构必须监控市场价格急剧下降 30% 或以上的情况,以避免危机的发生。我们普遍认为,国有银行尤其是印度的国有银行能增强公众信心。我们的论文能够支持公众信心理论,与私人银行和 NBFCs 相比,公共部门银行对系统风险增长的贡献较小。从我们的研究结果来看,NBFCs 是造成系统性风险增长的最大因素。因此,在未来的日子里,NBFCs 将受到监管机构的密切关注,并需要采取适当的监管措施。
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来源期刊
CiteScore
3.00
自引率
0.00%
发文量
34
期刊介绍: The current remarkable growth in the Asia-Pacific financial markets is certain to continue. These markets are expected to play a further important role in the world capital markets for investment and risk management. In accordance with this development, Asia-Pacific Financial Markets (formerly Financial Engineering and the Japanese Markets), the official journal of the Japanese Association of Financial Econometrics and Engineering (JAFEE), is expected to provide an international forum for researchers and practitioners in academia, industry, and government, who engage in empirical and/or theoretical research into the financial markets. We invite submission of quality papers on all aspects of finance and financial engineering. Here we interpret the term ''financial engineering'' broadly enough to cover such topics as financial time series, portfolio analysis, global asset allocation, trading strategy for investment, optimization methods, macro monetary economic analysis and pricing models for various financial assets including derivatives We stress that purely theoretical papers, as well as empirical studies that use Asia-Pacific market data, are welcome. Officially cited as: Asia-Pac Financ Markets
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