Assessing the role of the fintech era on the banking stability of an emerging economy : interaction analysis of Indian banking industry

Abstract

Research background: The rapid expansion in recent fintech innovations has garnered researchers' attention to evaluate its influence on the banking industry.

Purpose: In this quest, the current study conducts an interaction analysis to measure the impact of the fintech era on Indian banking stability.

Research Methodology: Similarly to previous studies, we use regression analysis and Pearson correlation on the transition period of the fintech era to measure the impact of explanatory variables on the outcome variables of the Indian banking industry. Furthermore, as a robustness test, we have also used the Generalised Method of Moments system approach. This enabled us to make comparisons with similar studies.

Results: Using annual data from 1995 to 2021, the study reveals that, compared to the first fintech era, the second era assisted in reducing NPLs and enhancing financial stability in India. The study concludes that during the second wave of the fintech revolution, through interaction analysis, explanatory variables positively influence banking stability and NPLs.

Novelty: The current study contributes toward understanding the significance of fintech development from the context of an emerging country. It also helps to interpret the importance of disruptive forces of fintech development in the banking industry.