This paper examines the key factors that determine institutional quality in the Indian subcontinent region. The investigation focuses on the four major economies of this region, i.e., India, Nepal, Bangladesh, and Pakistan. Collectively, these countries account for nearly 98 per cent of the region’s total GDP, thereby representing the economic core of the subcontinent. Based on the Worldwide Governance Indicators of the World Bank, the study constructs a PCA-weighted index of institutional quality. The findings reveal that after experiencing a significant deterioration in the institutional quality, the sample countries observed an improvement in the years following 2012. Per capita GDP, Years of schooling, and income distribution are significant determinants of institutional quality in the Indian subcontinent. Based on the findings, we draw policy implications for strengthening the regional institutional ecosystem.

This study examines how bank stability has evolved and its determinants in four major countries of the Indian subcontinent - India, Nepal, Bangladesh, and Pakistan – during 2004–2018. Using the stability frameworks of the sampled countries, we build a PCA-weighted composite indicator of bank stability. Econometric estimation is performed using dynamic panel methods to capture the influence of bank-specific, industry-specific characteristics, macroeconomic disparities, and institutional quality on bank stability. Empirical evidence shows that the banking systems in India, Nepal, and Bangladesh experienced a jolt in stability levels in 2013–14, and the recovery to the previous level of stability is not instantaneous. Larger banks, in terms of total assets, appear more stable in India. However, results validate the prevalence of the “too big to fail” hypothesis in Bangladesh and Pakistan. The analysis confirms the “diversification-stability” hypothesis for Nepal. Inflation shows a deleterious influence on bank stability in the region, whereas the quality of institutions has a beneficial effect on the stability of Indian and Nepalese commercial banks. The findings are consistent across alternative panel models and bank stability aspects.