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Market power, efficiency and stability of Indian banks

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Abstract

We investigate the relationship between stability and market power in the Indian banking system for the years 2005 to 2019. For this purpose, we employ three different indicators of bank stability and two alternate measures of the Lerner index (traditional and efficiency-adjusted). Our empirical specification takes into account the possibility of a nonlinear relationship between competition and stability. We use bank-level cost efficiency scores, obtained from stochastic frontier analysis, in addition to customary control variables. Our results provide support to the competition-fragility view for the whole Indian banking industry as well as for the different bank categories.

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Authors and Affiliations

  1. Xavier Institute of Management, XIM University, Xavier Square, Bhubaneswar, 751013, India

    Biswa Swarup Misra

  2. Department of Economics and Statistics, University of Salerno, Fisciano, Italy

    Paolo Coccorese

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  1. Biswa Swarup Misra
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  2. Paolo Coccorese
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Correspondence to Biswa Swarup Misra.

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Misra, B.S., Coccorese, P. Market power, efficiency and stability of Indian banks. Econ Change Restruct 55, 2263–2292 (2022). https://doi.org/10.1007/s10644-022-09387-3

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