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Is Demonetisation a Windfall for the banking sector? Evidence from the Indian stock market

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  • Ritika Jain

    (Centre for Development Studies, Trivandrum)

Abstract

Demonetisation by the Indian government on the evening of November 8 has quivered the entire economy. However, one sector that has been expected unanimously to benefit from this intervention is the banking sector. In the last decade, the two segments of the banking sector- private and public sector banks have witnessed contrasting trends in the management of non-performing assets resulting in recapitalization of public sector banks by the government. Against this back drop, the current study examines the impact of demonetisation on the returns of 40 (private and public) listed banks in India. The study uses aggregated and disaggregated data to measure the impact of demonetisation employing an event study approach and regression methodology. The findings suggest that the overall banking sector had recorded modest rise in returns after demonetisation but the effect was short lived. By segmenting the sector into public and private segments reflect differential impacts. The public sector banks witnessed an immediate positive effect on the returns whereas the private banks recorded a lagged negative impact.

Suggested Citation

  • Ritika Jain, 2017. "Is Demonetisation a Windfall for the banking sector? Evidence from the Indian stock market," Economics Bulletin, AccessEcon, vol. 37(2), pages 712-722.
    • Handle: RePEc:ebl:ecbull:eb-17-00264
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    References listed on IDEAS

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    1. Paul Wachtel, 2001. "Growth and Finance: What Do We Know and How Do We Know It?," International Finance, Wiley Blackwell, vol. 4(3), pages 335-362.
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    Cited by:

    1. Dhammika Dharmapala & Vikramaditya S. Khanna, 2019. "Stock Market Reactions to India's 2016 Demonetization," Journal of Empirical Legal Studies, John Wiley & Sons, vol. 16(2), pages 281-317, June.

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    More about this item

    Keywords

    Demonetisation; banking; event study analysis; public sector; Non-performing assets; stock market; India;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • L3 - Industrial Organization - - Nonprofit Organizations and Public Enterprise

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