Banking on Sustainability: The Role of Indian Banks in Facing Black Swan Events

Black Swan events are the events that are extremely unpredictable, sudden, and heavily impactful. Such events are sparse in history and are rarely thought over. Hence, they tend to lose their defense over anticipated risk. On the other hand, such events also highlight the inefficiency and anomaly in the structure and functioning of the market. This chapter aims to reveal the fallacies found in the country’s banking sector during the emergence of a Black Swan event and explores the role of mechanisms like social dividends in mitigating the social and economic impacts of such events. The analysis reveals how existing regulatory frameworks failed to account for nonlinear risks, while suggesting institutional reforms to enhance financial system resilience. For the purpose of this study, demonetization in India on November 8th, 2016, is taken as a Black Swan event. AutoRegressive Integrated Moving Average (ARIMA) model is further applied to the stocks of the banking sector to check the speed of information adjustment in them (Prasanna & Menon, 2013). Results reveal severe disruptions, with all but two banks exhibiting abrupt return fluctuations. The study underscores the need for adaptive financial policies and preemptive safeguards to enhance systemic resilience against future shocks. Future research directions include developing early warning systems and stress-testing frameworks for Black Swan scenarios