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Does Competition Increase Bank Risk in India?
Using a sample of commercial banks in India, we examine the effect of competition on bank risk and then assess whether this effect is influenced by equity capital ratio and deposit share. Two main results emerge. First, greater competition increases insolvency risk, earnings volatility, net non-performing loan ratio, and gross non-performing loan ratio. However, competition does not affect total return risk, systematic risk, or unsystematic risk. Second, greater equity capital ratio reduces the effect of competition on insolvency risk, while greater deposit share increases it.
Using a sample of commercial banks in India, we examine the effect of competition on bank risk and then assess whether this effect is influenced by equity capital ratio and deposit share. Two main results emerge. First, greater competition increases insolvency risk, earnings volatility, net non-performing loan ratio, and gross non-performing loan ratio. However, competition does not affect total return risk, systematic risk, or unsystematic risk. Second, greater equity capital ratio reduces the effect of competition on insolvency risk, while greater deposit share increases it.
