Ownership Structure, Size and Banking System Fragility in India

Abstract

Considering the fact that Reserve Bank of India (RBI) has put eleven Public sector Banks under Prompt Corrective Action (PCA) and planning to put three more, where Public sector banks constitute 68.9% of total Asset of Indian Banking Industry based on 2017 figures, this raises a genuine concern for Fragility of Indian Banking sector as whole. This study proposes to apply Cox proportional hazards model function to estimate the survival rate of Indian Banks. Ownership and size plays an important role on functioning of banks, so this study estimates if the probability of survival of Public sector Banks is more than Private sector banks and second, if large banks have more chances of survival than smaller Banks. This study found that, on the basis of ownership there is no statistical significant difference in the failure risk of Public sector banks and Private sector Banks. However, Smaller Banks are at the higher risk of failure than Large Banks. This study is based on Public and Private sector banks operating in India for the period 2000-2017 and findings of this study can be used to create an early warning systems for smaller Banks in India.