Volatility connectedness and systemic risk in the Indian banking system: evidence from bank mergers

The Indian banking sector has witnessed several large-scale mergers in the past decade. This study employed TVP-VAR framework to examine merged banks’ contribution to systemic risk through volatility connectedness within the banking network. The findings suggest that merged banks in particular exhibit stronger outward spillover intensity relative to inward spillovers, acting predominantly as net transmitters of volatility shocks. This supports the concentration-fragility hypothesis, indicating that consolidation may amplify systemic risk through increased volatility connectedness despite potential efficiency gains at the individual bank level. Other large banks act as transmitters while small banks act as absorbers of volatility shocks within the banking network.