BANK MERGERS AND COMPETITIVENESS OF MARKET IN INDIA : AN APPLICATION OF PANZAR ROSSE MODEL

Abstract

 Market concentration across the banking business of India has expanded significantly since 1990s economic reforms as a result of M&As and bank consolidation. This method of bank consolidation has improved the banking industry's assets, capital reserves, and profitability. However, this process has sparked concerns pertaining to banks' monopoly and oligopolistic market power due to the rise in concentration of markets that has resulted from it. There is growing anxiety in the banking sector about market power.

The purpose of the current study is to examine how market consolidation has affected the competitiveness and market structure of the Indian financial system. In this study, the H- statistics are computed using the Panzar and Rosse’s method to get the extent of competitiveness across the system of Indian banking. The proposed H-statistic is computed for the 2009–2017 (pre–merger) and 2018–2023 (post–merger) time periods. For both of the research periods, the Panzar-Rosse method produces positive H-statistics. The monopoly or perfect competition theory of market power appears to be disproved by the Wald test results. The empirical results unequivocally demonstrate that monopolistic competitive environment exists within the banking sector of India, and also that bank competitiveness has decreased as bank consolidation has increased. This discovery confirms earlier assumptions about increasing risk and lesser competitiveness resulting from a concentrated financial sector.