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Revisiting Bank Mergers

Does Size Matter?

Subhanil Banerjee (subhanil11@gmail.com) is a research scholar at the KIIT School of Management, KIIT University, Bhubaneswar, Odisha.

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.

I am indebted to Amiya Kumar Bagchi for his valuable comments and suggestions during the development of this paper. I am also grateful to Zakir Husain for his technical insights, and to Sailabala Debi, Ashok Kumar Sar, L K Vaswani, Rabi Narayan Subudhi, Prashant Parida, Jogendra Behera and Sankalpa Bhattacharjee for their encouragement and belief in me.

Updated On : 12th Sep, 2017

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