1 About
This study focuses on analyzing the vulnerability faced by Indian banks during the COVID-19 pandemic. It specifically utilizes the marginal expected shortfall of stock returns as a measure to assess the vulnerability of banks. The research investigates the impact of the COVID-19 outbreak on the crash risk experienced by firms that took loans from vulnerable banks, comparing it to firms that borrowed from non-vulnerable banks.
2 Source
Here, I provide an overview of the project. To delve into the methodology and explore the critical findings, I encourage you to review the accompanying slides and detailed report (above links).
3 Why this topic?
India’s banking sector comprises a mix of state-owned banks and private sector banks, providing an ideal setting to explore the effects of the COVID-19 crisis on these institutions. During times of crisis, it is common for people to perceive state-owned banks as more secure and withdraw their money from private sector banks, depositing it into public sector banks instead. Additionally, crises often prompt individuals to conduct more thorough market investigations, leading managers to be more transparent with bad news, which can result in a drop in stock prices. By utilizing crash risk and considering several fixed effects, this study aims to verify these common perceptions and observations.
4 Objective
The main objective of this study is to examine whether firms that took loans from vulnerable banks experienced a higher crash risk compared to those that borrowed from non-vulnerable banks during the COVID-19 crisis.
5 Exploratory Data Analysis (EDA)
- Private sector banks exhibited a higher vulnerability compared to public sector banks during the crisis period.
- Public banks extended loans to a larger number of banks.
- State Bank of India (SBI) emerged as the top lending bank in the public sector, while HDFC held the top position in the private sector.
- The top three industries in terms of loan recipients were fund-based financial services, wholesale trading, and drugs & pharmaceuticals.
- A significant portion of financial service firms obtained loans from private sector banks, with HDFC and AXIS being the prominent lenders in this sector.
- Firms that borrowed from vulnerable banks, particularly in the private sector, exhibited higher average return on assets.
- The firms that took loans from private vulnerable banks had a relatively higher average leverage compared to those that borrowed from public vulnerable banks. These initial findings from the EDA stage provide valuable insights into the vulnerability of Indian banks during the COVID-19 crisis and set the foundation for further analysis in the study.