Financial inclusion and bank stability controversy: Evidence from South Asian region

Abstract

Despite a substantial growth in efficiency and profitability, South Asian region’s well-established banking system is likely to be incapable to grasp wide sections of the population, particularly the deprived ones. Numerous studies revealed that financial inclusion impact bank stability, but no significant empirical study has been made on the economies of South Asian region. The aim of the study is to explore the impact of financial inclusion on bank stability across South Asian region using data from 88 commercial banks from four economies (Bangladesh, India, Pakistan and Sri Lanka) over the period of 2012–2018. Results using two-step system GMM suggest that an increase in financial inclusion enhances bank stability across economies of South Asian region. This study contains some significant policy implications to generate real opportunities for financial inclusion to improve bank stability.