Banking activities and natural disasters: empirical evidence from India

This paper aims to analyse the impact of the 2001 Indian earthquake on the activity of banks. To that end, we use a dataset from 366 banks located in 141 cities in India over the period 1995-2007 and the Difference-in-Differences method. We observe that the natural disaster has affected the profit-earning assets of Indian banks. Specifically, we show that in response to this natural disaster banks have reduced the volume of loans and hold more securities in the earthquake-affected cities. Furthermore, we find a lower level of risk-taking by banks after the earthquake. In doing so, we provide the first evidence of Indian banks' exposure to natural disasters.