Proposal:

The study proposes to look into the relationship between financial inclusion and banking concentration at the inter-country level as well as inter-state level for India. The authors conjecture the relationship to be ambiguous. Further, the study wishes to explore whether the usual reasons considered as impediments to financial inclusion viz. literacy and GDP (GSDP in the case of Indian states) really exhibit the same relation viz a viz financial inclusion as our a posteriori understanding or not. Since the literature on the relationship between financial inclusion and banking concentration is relatively thin, our contribution from this study will be three-fold. First, to evoke a debate on the relationship between financial inclusion and banking concentration. Second, to provide empirical evidence on the synergies and trade-offs between financial inclusion and banking concentration. Third, it will also help us understand the banking consolidation process, and whether the Narasimham committee recommendations are in conformity with the requirements of the scenario.

This paper develops a theoretical model to quantify the social value of banks and provides a framework for evaluating the justification for bailouts. In economies such as India, where commercial banks are required to allocate 40% of their net time and demand liabilities (NTDL) to priority sectors— including self-help groups (SHGs), agriculture, micro, small, and medium enterprises (MSMEs), women entrepreneurs, etc.— the social contribution of banks is significant. I formulate a theoretical model incorporating these contributions inter alia, and argue that bailouts should be contingent upon a bank exceeding a minimum threshold of social value. Consequently, the common argument that taxpayer funds should not be used to bail out banks due to the reckless lending practices of profit-driven managers may not always be justified. Instead, the role of banks in fostering economic growth & development should be carefully considered before making bailout decisions. 

(Work in Progress)

The Endogenous Architecture of Finance:   A Theory of Emergent Bank-Based vs Market-Based Structures

This paper develops a dynamic infinite-horizon general equilibrium model to explain the endogenous emergence and evolution of financial systems. We characterize an economy populated by a continuum of infinitely lived agents facing idiosyncratic liquidity preference shocks and heterogeneous investment technologies. The model features two distinct production sectors: standardized projects requiring delegated monitoring and innovative projects requiring costly information acquisition and aggregation. Financial intermediaries emerge endogenously to solve coordination and insurance problems. We prove existence of a theoretical tipping point where information aggregation benefits dominate liquidity insurance advantages, and show that the framework yields non-linear transitional dynamics and multiple steady states. Methodologically, we integrate delegated monitoring, liquidity transformation, and endogenous information acquisition within a recursive dynamic programming framework and provide existence and characterization results for equilibrium paths.

(Work in Progress)