Network Analysis of NEFT Transactions in India

Shashi Kant and Sarat Chandra Dhal of RBI in Aug-2019 Bulletin article do network analysis of NEFT transactions in India:

Since the global crisis in 2008, network models have emerged as a tool for analysis of interbank financial exposures. The recent literature has accordingly emphasised the role of network analysis of interbank payment transactions in complementing the existing framework for financial stability analysis (Caccioli et al., 2018). Where central banks are the operators of payment and settlement infrastructure, as in India, a comparative advantage is that it is relatively easier to acquire clean, structured and accurate data that are crucial for network analysis.

Surprisingly, therefore, there has been little research on the interconnectedness of participating entities in the payment system in India. The motivation for
this study is to bridge this gap as a first attempt in the Indian context. We use the National Electronic Fund Transfer (NEFT) system as a case study. Operated by the Reserve Bank of India (RBI), it is India’s largest payment system by volume and a game changer in the retail payments sphere.

We examine the network topology of the NEFT system and analyse financial interconnectedness using network metrics of centrality. Using bilateral transaction information for each participating institution aggregated for March and April months of 2019, we build a network graph depicting the linkages. We use these data to explore the connections between various groups of banks in order to identify patterns. We also seek prominent players in the payment network in order of their systemic importance using a non-parametric methodology (Jaramillio et al., 2014). 

In summary, our findings show that out of the public sector, private sector and foreign banks that constitute around 83 per cent and 87 per cent of the
total transactions by value on NEFT in the month of March and April respectively, the flow from private sector to public sector banks is very large, with public
sector banks being net receivers in the system. We also present evidence of strong connections between public and public sector, and between private sector
banks, nascent role of co-operative banks and newly established payment banks in NEFT. 

Lots of amazing pictures of networks..

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