Does ownership matter in bank herding behavior? Evidence from India

Competitive pressures in the post-liberalization period necessitated Indian banks to exhibit plausible herding tendencies in garnering new clientele to optimize informational and operational costs. The empirical analysis finds herding behavior among Indian banks nuanced by bank ownership categories. While macroeconomic factors have a sparing impact, the bank-specific-industry factors exert a greater influence on the bank herding measures across credit segments. The analysis from this study provides new evidence: first, banks with highly concentrated branch networks exhibit lower herding tendencies across all ownership categories; second, banks’ asset quality is negatively associated with herding, more specifically in the case of public and private sector banks, suggesting risk aversion on the part of the banks. Besides augmenting the literature, the results have policy relevance from an emerging market perspective with imperatives to promote credit access and inclusive growth while improving bank efficiency and financial stability.