Consolidation in banking and financial sector in India

The consolidation of financial institutions is driven by attempts to exploit economies of scale and scope, and technological advances such as the Internet are making it easier to reap such economies. Although the empirical evidence on economies of scale and scope is elusive, it appears that with recent technological improvements, relatively small-scale banks in emerging markets are likely to improve their cost and revenue efficiency by consolidating and achieving a larger size and scope of activities. Most banks in emerging markets are following the universal banking paradigm and are increasing the share of revenues obtained through the sale of securities, mutual funds, and insurance products. The main forces encouraging consolidation in mature market banking systems—namely globalization, advances in information technology, and deregulation—as well as those discouraging it— lack of information and transparency, different regulatory frameworks, ownership structures, and cultures—are also at work in emerging markets. Present Paper is an attempt to study consolidation practices and their effect in India.