Financial Inclusion as a Strategy for Financial Stability in India: Empirical Evidence Using FMOLS Technique

The present study examined the effects of financial inclusion on financial stability in India using Fully Modified Least squares (FMOLS) technique based on time series data from 1996-2016. The comprehensive financial inclusion index is used to assess the level of financial inclusion during the period of study. Financial integration, domestic credit to private sector and GDP per Capita growth are included as control variables. The study found that there exist positive and significant relationship between financial inclusion and financial stability in India. Thus greater access of financial services for low-income household broadly aids financial stability i.e. lowers the probability of default by financial institutions.