Digital Financial Inclusion and Bank Competition - An Impact on Bank Stability in India

Vol 10 , Issue 2 , July - December 2023 | Pages: 38-54 | Research Paper

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https://doi.org/10.17492/jpi.mudra.v10i2.1022303

Published Online: December 10, 2023

Author Details ( * ) denotes Corresponding author

1. * Kirti Singh, Assistant Professor, Department of Commerce, Faculty of Commerce and Business , Delhi School of Economics, University of Delhi, Delhi, Delhi, India (drkirtisingh19@gmail.com)

The rapid growth of digital finance has challenged traditional financial services while offering opportunities for low-income communities and small businesses. Digital financial inclusion can help countries achieve financial inclusion and sustainable development goals and boost economic growth. This research investigates the role of digital financial inclusion in bank stability. It utilises the two-step System generalised Method of Moments to examine its effects and bank competition on bank stability in sub-Saharan India from 2016-2022. The study employs metrics such as z-score, HHI, non-performing loans, and a digital financial inclusion index. The results reveal a strong link between digital financial inclusion and bank stability and a connection between digital financial inclusion and bad loans. However, bank competition negatively affects stability. Policymakers should promote digital financial literacy, increase bank competitiveness, and decrease non-performing loans and insolvency to maintain bank stability, emphasising the importance of fostering competition and integrating financial literacy into digital financial inclusion efforts.

Keywords

Bank; Stability; Competition; Digital; Financial Inclusion

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