Testing Systemic Risk Measures in Indian Banks: Local Lessons from Global Models

This study examines whether market-based systemic risk indicators provide regulators with reliable early signals of distress in the Indian banking system. Using daily equity returns, we compute MES, LRMES, SRISK and realised shortfall for all listed banks. Our findings show that MES consistently underestimates actual losses during severe market downturns, especially among large and privately owned banks, limiting its value as a timely supervisory indicator. LRMES displays comparable but milder underestimation. In contrast, SRISK and realised shortfall provide more credible assessments of potential capital erosion, capturing emerging vulnerabilities well before losses fully materialise. For policymakers, these results underscore the importance of using a suite of complementary metrics to strengthen macroprudential surveillance and calibrate capital buffers in the Indian context.