Financial inclusion and bank stability: Evidence from the Indian banking system

This paper focuses on the effects of financial inclusion on bank stability in the Indian context, using the new Indian government financial inclusion policy, Pradhan Mantri Jan Dhan Yojana (PMJDY), as a quasi-experiment. We document a direct relationship between inclusion and bank stability. These results remain robust to using alternative measures of financial inclusion (rural, urban, and combined beneficiaries), and across different dimensions of bank stability, such as Z-score, CASA, and provision for non-performing assets. Our findings suggest that financial inclusion has an especially positive effect on bank stability when focused on rural areas.