ISSN (Online) - 2349-8846

Subhanil BanerjeeSubscribe to RSS - Subhanil Banerjee

Revisiting Bank Mergers

The central government’s policy favouring bank mergers assumes enhanced efficiency of the merged banks through economies of scale and scope. An econometric analysis of India’s scheduled commercial banks, however, establishes that in the Indian banking sector, mergers may actually be detrimental to efficiency. This paper argues that public sector banks were set up to serve the welfare needs of the underprivileged and to promote financial inclusion, not to make profits. In the case of bank mergers, economies of scale and scope are being used to veil the promotion of economies of exclusion.

How Strong Are the Arguments for Bank Mergers?

If the officially initiated move for merging banks is a further step towards full capital account convertibility that it appears to be, then it should be resisted with all the political will of the people caring for the welfare of the many rather than the wealth of the few. But even without that design, the move seems to be based on bad reasoning and poor empirical evidence.
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