Vol. 7, Issue 2, Part J (2025)

The COVID-19 pandemic triggered one of the most severe economic disruptions in recent history, shaking financial markets and real-sector activities across the globe-especially in emerging economies like India. This study takes a closer look at how stock market volatility, shifts in commodity prices, and the rise in non-performing assets (NPAs) in Indian banks were interconnected during this turbulent period.
Drawing on daily and quarterly data from January 2016 to December 2023, the research uses advanced econometric techniques-including VAR-GARCH, DCC-GARCH, wavelet coherence analysis, and panel regression models-to uncover patterns and relationships.
The findings reveal a strong connection between financial market stress and deteriorating asset quality in the banking sector. As stock market volatility surged during the pandemic, NPAs in banks climbed noticeably. At the same time, sharp declines in key commodity prices-especially crude oil and industrial metals-intensified the risk of loan defaults. Banks with greater exposure to commodity-sensitive sectors felt the impact more acutely.
Stress-testing scenarios show that when volatility spikes and commodity prices crash simultaneously, banks’ capital adequacy levels could dip below regulatory thresholds-posing a serious systemic risk to financial stability.
These insights underscore the need for integrated macro-financial monitoring and forward-looking policy measures. Strengthening volatility tracking, building up counter-cyclical capital buffers, and diversifying risk exposure are key steps to making India’s banking system more resilient in the face of future crises.