Post liberalization trends of competition in indian banking sector

There has been a considerable widening and deepening of the India financial system of which banking sector is a significant component under the influence of the financial sector reforms initiated during the early 1990s. Banking sector reforms have established a competitive system driven by market forces. This paper provides an empirical analysis of bank competition in India during the sample period of 2005-2010. While a significant process of bank consolidation has been taking place in the country, reflected in a decline in the number of banks, this process has not systematically been associated with increased concentration as measured by standard concentration indices. Moreover, econometric estimates based on the Panzar-Rosse (1987) methodology suggest that overall markets have not become less competitive in the sample period. The empirical evidence reveals that the Indian banking system operates under competitive conditions.