India’s Banking Market Structure: Impact Assessment of Bank Consolidation

Abstract

The present study aims to extend the existing literature on measuring competition by including recent bank consolidation in India. Unlike existing literature, the study goes in-depth to account for the asymmetric behavior of bank competition owing to ownership, size, scale, efficiency, and pre/post-global financial crisis. The study takes the unbalanced panel data of Indian banks from 1995-2021 and utilizes the nonstructural approaches- Lerner Index, PRH statistic, and Boone Indicators to measure the bank competition. The study finds the asymmetric level of competition across ownership, size, profitability, and inter-temporal- before and after the global financial crisis. It finds that the smallest banks experienced lower competition during 2006-2021, whereas the largest banks behaved competitively. Similarly, the lowprofit banks have noted a higher level of competition than the high-profit-making banks, indicating the role of structure in bank performance. The less efficient banks have reported higher competition. Using PRH statistics, it was found that the Indian banking industry experiences monopolistic competition. The findings hail that the private sector banks and more extensive holdings are exhibiting a higher level of competition compared to the public sector banks. For the Boone indicator, the study finds a modest level of competition in line with the World Bank's estimation.