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Does Bank Competition Necessarily Contribute to Higher Profits? The Case of Indian Banking

Author

Listed:
  • Bijoy Rakshit

    (School of Liberal Studies, Pandit Deendyal Energy University, India)

Abstract

This paper empirically examines an important research question of whether changes in bank competition have influenced the profitability pattern of Indian banking. Using the two-step system generalized method of moments, we examine the implications of bank deregulation measures on bank profitability for a set of 70 commercial banks in India over the period 1997 to 2017. The findings show that a higher degree of bank competition that has led to the contraction of the interest rates margin has negatively affected bank profitability. The findings also suggest important policy implications for the Indian banking industry.

Suggested Citation

  • Bijoy Rakshit, 2022. "Does Bank Competition Necessarily Contribute to Higher Profits? The Case of Indian Banking," Asian Economics Letters, Asia-Pacific Applied Economics Association, vol. 3(3), pages 1-7.
    • Handle: RePEc:ayb:jrnael:74
    DOI: 2022/08/21
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    References listed on IDEAS

    as
    1. Dimitris K. Chronopoulos & Hong Liu & Fiona J. McMillan & John O.S. Wilson, 2015. "The dynamics of US bank profitability," The European Journal of Finance, Taylor & Francis Journals, vol. 21(5), pages 426-443, March.
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    3. Sangeeta D. Misra, 2015. "Determinants of bank profitability in India," International Journal of Indian Culture and Business Management, Inderscience Enterprises Ltd, vol. 10(2), pages 193-211.
    4. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    5. Bijoy Rakshit & Samaresh Bardhan, 2020. "Does Bank Competition Enhance or Hinder Financial Stability? Evidence from Indian Banking," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 9(special i), pages 75-102.
    6. Mostak Ahamed, M., 2017. "Asset quality, non-interest income, and bank profitability: Evidence from Indian banks," Economic Modelling, Elsevier, vol. 63(C), pages 1-14.
    7. Goddard, John & Liu, Hong & Molyneux, Philip & Wilson, John O.S., 2011. "The persistence of bank profit," Journal of Banking & Finance, Elsevier, vol. 35(11), pages 2881-2890, November.
    8. Rakshit, Bijoy & Bardhan, Samaresh, 2022. "An empirical investigation of the effects of competition, efficiency and risk-taking on profitability: An application in Indian banking," Journal of Economics and Business, Elsevier, vol. 118(C).
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Bank competition; profitability; System-GMM;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • F30 - International Economics - - International Finance - - - General

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