Jump to ContentJump to Main Navigation
Show Summary Details
More options …

Review of Economic Perspectives

Národohospodárský obzor; The Journal of Masaryk University

4 Issues per year


CiteScore 2016: 0.50

SCImago Journal Rank (SJR) 2016: 0.262
Source Normalized Impact per Paper (SNIP) 2016: 0.516

Open Access
Online
ISSN
1804-1663
See all formats and pricing
More options …
Volume 12, Issue 4 (Dec 2012)

Issues

Structure, Conduct and Performance of Indian Banking Sector

Pulak Mishra
  • Associate Professor in Economics, Department of Humanities and Social Sciences, Indian Institute of Technology Kharagpur, India
  • Email
  • Other articles by this author:
  • De Gruyter OnlineGoogle Scholar
/ Deepti Sahoo
Published Online: 2013-01-29 | DOI: https://doi.org/10.2478/v10135-012-0011-9

Abstract

In the context of initiation of economic reforms in general and changes in policies and regulations of the banking sector in particular, the present paper attempts to examine the structure-conduct-performance relationships in Indian banking sector. It is observed that there have been changes in the market structure of Indian banking sector, conducts of the banks and their performance in the post-reform era, especially during the last decade, though the changes have not been significant in every aspect. Using a panel dataset of 59 banks operating in India during 1999-2000 to 2008-2009 and applying the two-stage least squares (2SLS) method of estimation, the paper finds that there exist strong inter-linkages amongst structure of the market, banks’ conduct and their financial performance. While market share of a bank depends directly on its market size, asset base, selling efforts, and past financial performance, its selling efforts vary directly with market share, asset base, and past financial performance. On the other hand, returns on assets of a bank vary directly with its market share, but inversely with its asset base and selling efforts. The regression results essentially suggest for multidirectional and dynamic SCP relationships in Indian banking sector. It is also found that the nature of ownership has significant influence on market share, selling efforts and financial performance of the banks. As compared to the nationalised banks, market share of the private banks (both domestic and foreign) is found to be lower. But private banks make greater selling efforts and have better financial performance vis-à-vis their public sector counterparts

Keywords : Banking sector; market structure; conduct; performance; policy; India

  • BAIN J. S. (1951). Relation of Profit Rate to Industry Concentration: American Manufacturing 1936-1940. Quarterly Journal of Economics. 65(3), pp. 293-325.Google Scholar

  • BAIN, J. S. (1959), Industrial Organization. New York: Wiley BAKER, J. B., WOODWARD, P. A. (1998). Market Power and the Cross-industry Behaviour of Price around a Business Cycle Trough. Working Paper No. 221. Bureau of Economics. Federal Trade Commission.Google Scholar

  • BASANT, R., MORRIS, S. (2000). Competition Policy in India: Issues for a Globalising Economy. Project Report Submitted to the Ministry of Industry, Government of India, New Delhi.Google Scholar

  • BERGER, A. N., HANNAN, T. H. (1992). The Price Concentration Relationship in Banking: A Reply. Review of Economics and Statistics. 74(2), pp.376-389.CrossrefGoogle Scholar

  • BERGER, A. N. (1995). The Profit-Structure Relationship in Banking: Tests of Market- Power and Efficient-Structure Hypotheses. Journal of Money, Credit and Banking. 27(2), pp. 404-431.Google Scholar

  • BHATTACHARYA, K., DAS, A. (2003). Dynamics of Market Structure and Competitiveness of the Banking Sector in India and its Impact on Output and Prices of Banking Services. Reserve Bank of India Occasional Papers. 24(3), pp. 124-159.Google Scholar

  • BRESNAHAN, T. F. (1989). Empirical Studies of Industries with Market Power. Handbook of Industrial Organization. Vol. 2, pp. 1011-57.Google Scholar

  • BRUCKER, E. (1970). A Microeconomic Approach to Banking Competition. Journalof Finance. 25(5), pp. 1133-1141.Google Scholar

  • CHO, Y.J. (1986). Inefficiencies from Financial Liberalization in the Absence of Well- Functioning Equity Markets. Journal of Money, Credit and Banking. 18(2), pp.191-199.Google Scholar

  • CHIAPPORI, P.A., PÉREZ-CASTRILLO, D., VERDIER, F. (1995). Spatial competition in the banking system, localization, cross-subsidies and the regulation of interest rates. European Economic Review. 39(5), pp. 889-919.Google Scholar

  • DELOMER, C. D., KLEIN, P. G., KAMERSCHEN, D. R., VOEKS, L. F. (2002). Structure Conduct and Performance: A Simultaneous Equations Approach. AppliedEconomics. 34(17), pp.13-20.Google Scholar

  • DEMSETZ, H. (1973). Industry Structure, Market Rivalry, and Public Policy. Journalof Law and Economics. 16(1), pp. 1-9.Google Scholar

  • DEMSETZ, H. (1974). Two Systems of Belief about Monopoly. In H. Goldschmid, H. Michael Mann and J. Fred Weston, eds. Industrial Concentration: The New Learning. Boston: Little, Brown and Co., pp. 164-84.Google Scholar

  • EDWARD, F. R. (1964). Concentration in Banking and Its Effect on Business Loan Rates. Review of Economic and Statistics. 46(3), pp. 294-300.Google Scholar

  • EVANOFF, D., FORTIER, L. (1988). Re-evaluation of the Structure-Conduct- Performance Paradigm in Banking. Journal of Financial Services Research. 1(3), pp. 277-294.Google Scholar

  • FRAME, W. S., D. R. KAMERSCHEN (1997). The Profit-Structure Relationship in Legally Protected Banking Markets Using Efficiency Measures. Review of IndustrialOrganization. 12, pp. 9-22.Google Scholar

  • GILBERT, A. (1984). Studies of Bank Market Structure and Competition: A Review and Evaluation. Journal of Money, Credit and Banking. 16, pp. 617-644.Google Scholar

  • GOLDBERGER, A. S. (1991). A course in Econometrics. Cambridge: Harvard University Press.Google Scholar

  • GRABEL, I. (1995). Assessing the Impact of Financial Liberalization on Stock Market Volatility in Selected Developing Countries. Journal of Development Studies. 31, pp. 903 - 917.Google Scholar

  • GUJARATI, D. N., SANGEETHA. (2007). Basic Econometrics (4th ed.). New Delhi: McGraw-Hill, Inc.Google Scholar

  • GUPTA, V. K. (1983). A Simultaneous Determination of Structure, Conduct and Performance in Canadian Manufacturing. Oxford Economic Papers. 35, pp. 281-301.Google Scholar

  • HANNAN, T. H., BERGER, A. N. (1989). Price rigidity and market structure: theory and evidence from the banking industry. Finance and Economics Discussion Series 59. Board of Governors of the Federal Reserve System (U.S.).Google Scholar

  • HANNAN, T. H. (1991).The Functional Relationship between Prices and Market Concentration: The Case of the Banking Industry. Finance and Economics Discussion Series 169. Board of Governors of the Federal Reserve System (U.S).Google Scholar

  • JOSHI, V., LITTLE, I.M.D. (1996). India's Economic Reforms 1991-2000. Oxford: Clarendon Press.Google Scholar

  • KATIB, N. M. (2004). Market Structure and Performance in the Malaysian Banking Industry: A Robust Estimation. 8th Capital Market Conference. Indian Institute of Capital Market Paper.Google Scholar

  • KHAMBAMPATI, U. S. (1996). Industrial concentration and performance: a study ofthe structure, conduct, and performance of Indian industry. New Delhi: Oxford University Press.Google Scholar

  • KIRZNER, I. M. (1973). Competition and Entrepreneurship. Chicago: University of Chicago Press.Google Scholar

  • LEVIN, A., LIN, C. F., CHU, C. (2002). Unit Root Tests in Panel Data: Asymptotic and Finite-Sample Properties. Journal of Econometrics. 108, pp. 1-24.CrossrefGoogle Scholar

  • LLOYAD-WILLIAMS, D. M., MOLYNEUX, P., THORNTON, J. (1994). Market structure and performance in Spanish banking. Journal of Banking and Finance. 18(3), pp. 433-443.Google Scholar

  • MARQUARDT, D. W. (1970). Generalized Inverses, Ridge Regression, Biased Linear Estimation and Nonlinear Estimation. Technometrics. 12(3), pp. 591-612.CrossrefGoogle Scholar

  • MARTIN, S. (1979a). Advertising, Concentration and Profitability: The Simultaneity Problem. Bell Journal of Economics. 10, pp. 639-47.CrossrefGoogle Scholar

  • MARTIN, S. (1979b). Entry Barriers, Concentration and Profits. Southern EconomicJournal, 46, pp. 471-88.Google Scholar

  • MASON, E. (1939). Price and Production Policies of Large-Scale Enterprise. AmericanEconomic Review. 29, pp. 61-74.Google Scholar

  • MASON, R. L., GUNST, R. F., HESS, J. L. (1989). Statistical Design and Analysis ofExperiments: Applications to Engineering and Science. New York: John Wiley and Sons, Inc.Google Scholar

  • MILLER, R. L., VANHOOSE, D. D. (1993). Modern Money and Banking. (3rd ed.). New York: McGraw-Hill.Google Scholar

  • MISHRA, P., BEHERA, B. (2007). Instabilities in Market Concentration: An Empirical Investigation in Indian Manufacturing Sector. Journal of Indian School of PoliticalEconomy. 19(3), pp.119-149.Google Scholar

  • MISHRA, P. (2005). Mergers and Acquisitions in the Indian Corporate Sector in the Post- Liberalisation Era: An Analysis. Unpublished Doctoral Thesis. Vidyasagar University, West Bengal.Google Scholar

  • MISHRA, P. (2008). Concentration-Markup Relationship in Indian Manufacturing Sector. Economic and Political Weekly. 43(39), pp.76-81.Google Scholar

  • MISHRA, P., VIKAS. (2010). Structure, Conduct and Performance in Indian Pharmaceutical Industry: A Simultaneous Equations Investigation. Review ofDevelopment and Change, 15(1), pp. 69-99.Google Scholar

  • MOLYNEUX, P., THORNTON, J. (1992). Determinants of European Bank Profitability: A Note. Journal of Banking and Finance 16(6), pp.1173-1178.Google Scholar

  • MOLYNEUX, P., FORBES W. (1995). Market Structure and Performance in European Banking. Applied Economics. 27(2), pp.155-159.CrossrefGoogle Scholar

  • MUELLER, D. C. (1990) (ed.). The Dynamics of Company Profits, An International Comparison. New York: Cambridge University Press.Google Scholar

  • MULLINEUX, A., SINCLAIR, P. (2000). Oligopolistic Banks: Theory and Policy Implications Unpublished .Google Scholar

  • NEUBERGER, D. (1997). Structure, Conduct and Performance in Banking Markets. Thuenen-Series of Applied Economic Theory 12. University of Rostock, Institute of Economics, Germany.Google Scholar

  • NEUMARK, D., SHARPE, S. A. (1992). Market Structure and the Nature of Price Rigidity: Evidence from the Market for Consumer Deposits. The Quarterly Journal ofEconomics. 107(2), pp. 657-80.Google Scholar

  • OKEAHALAM, C.C. (1998). Concentration in the Banking Sector of the Common Monetary Area of Southern Africa. Paper was presented at the Development Issues in the New Economy Conference. University of Cape Town, South Africa. March 24-26 2002.Google Scholar

  • OSBORNE, D. K., WENDEL, J. (1983). Research in Structure, Conduct and Performance in Banking 1964-1979. Research paper 83-003. College of Business Administration, Oklahoma State University.Google Scholar

  • PRAGER, R., HANNAN. T. H. (1998). Do Substantial Horizontal Mergers Generate Significant Price Effects? Evidence from the Banking Industry. Journal of IndustrialEconomics. 46(4), pp. 433-452.Google Scholar

  • PHILLIPS, A. (1967). Evidence of Concentration in Banking Markets and Interest Rates. Federal Reserve Bulletin. 53(6), pp. 916-926.Google Scholar

  • PODENDA, R. J. (1986). Structure and performance: Some evidence from California banking, Economic Review. Federal Reserve Bank of Sanfrancisco (winter), 5-17.Google Scholar

  • PUSHPANGADAN, K., SHANTA, N. (2008). Competition and Profitability in Indian Manufacturing Sector. Indian Economic Review. 43(1), pp. 103-123.Google Scholar

  • RAM MOHAN, T.T. (2001). Long run performance of public and private sector bank stocks Economic And Political Weekly. 36(52), pp. 4865-4871.Google Scholar

  • RAMASWAMY, K. V. (2006). State of Competition in Indian Manufacturing Industry. In Mehta, P. S. (Ed). A Functional Competition Policy for India. New Delhi: Academic Foundation.Google Scholar

  • RHOADES, S. A. (1985). Market Share as a Source of Market Power: Implications and Some Evidence. Journal of Economics and Business. 37(4), pp. 343-365.CrossrefGoogle Scholar

  • SCHERER, F.M., ROSS, D. (1990). Industrial Market Structure and EconomicPerformance. Boston: Houghton Mifflin.Google Scholar

  • SCHMALENSEE, R. (1989). Inter-industry Studies of Structure and Performance. In R.Google Scholar

  • Schmalensee and R. Willig (ed.) Handbook of Industrial Organization. Vol. 2, New York: North Holland. pp. 952-1009.Google Scholar

  • SHACKLE, G. L. S. (1971). Economics for Pleasure. Cambridge: Cambridge University Press.Google Scholar

  • SHAFFER, S. (1989). Competition in the U.S. banking industry. Economics Letters. 29(4), pp. 321-323.CrossrefGoogle Scholar

  • SINGH, A. (1993). Stock Markets, Financial Liberalization, and Economic Development. Economic Journal. 107(442), pp. 771-782.Google Scholar

  • SMIRLOCK, M. (1985). Evidence on the (non) Relationship between Concentration and Profitability in Banking. Journal of Money, Credit and Banking. 17(1), pp.69-83.Google Scholar

  • STRICKLAND, A. D., WEISS, L. W. (1976). Advertising, Concentration and Price- Cost Margins Journal of Political Economy. 84(5), pp. 1109-1121.Google Scholar

  • SWANK, J. (1996). Theories of the Banking Firm: A Review of the Literature. Bulletinof Economic Research. 48(3), pp.173-207.Google Scholar

  • THAKOR, A.V. (1995). Financial Intermediation and the Market for Credit. edited by Jarrow, Handbooks in Operations Research and Management Science. Elsevier Science. Vol. 9, pp. 1073-1103.Google Scholar

  • VERNON, J. R. (1971). Separation of ownership and control and profits rates, the evidence from banking: Comment. Journal of Financial and Quantitative Analysis. 6(1), pp. 615-625.Google Scholar

  • VERMA, S., SAINIR, R. (2010). Structure Conduct and Performance of commercial bank in India. Prajnan. 39(2), pp. 39-45.Google Scholar

  • VICKERS, J. (1995). Concepts of Competition. Oxford Economic Papers. 47(1), pp. 1-23.Google Scholar

  • WEISS, L. (1974). The Concentration-Profits Relationship and Antitrust. In Audretsch, D., Yamawaki, H., (eds), Industrial Concentration: The New Learning Boston: Little Brown and Company. Google Scholar

About the article

Published Online: 2013-01-29

Published in Print: 2012-12-01


Citation Information: Review of Economic Perspectives, ISSN (Online) 1804-1663, ISSN (Print) 1213-2446, DOI: https://doi.org/10.2478/v10135-012-0011-9.

Export Citation

This content is open access.

Comments (0)

Please log in or register to comment.
Log in