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Merger of Public Sector Banks in India Under the Rule of Reason

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Listed:
  • Rani S. Ladha

Abstract

This article models the idea of rule of reason of the antitrust literature and applies the model to analyse the possible consolidation of the Indian banking industry through merger and acquisition activities. It offers a strategic perspective for public sector banks whereby the banks either meet societal goals or become savvy international players through mergers. India being an emerging economy, the banking industry faces two critical initiatives: (i) proactive servicing of the rural areas and priority sectors and (ii) a serious presence in the international markets to compete with larger global banks. The model developed in this article suggests ways to evaluate and examine mergers in the banking sector in India to support both these initiatives. It proposes that the government could use the threat of merger to induce reluctant public sector banks to meet the critical domestic agenda and performance metrics. Those that meet the societal goals may continue to have the benefit of the status quo. Those that do not are required to merge to form an entity that can internationally compete in raising equity and deposits and providing loans and services. JEL Classification: G34, G38, K21

Suggested Citation

  • Rani S. Ladha, 2017. "Merger of Public Sector Banks in India Under the Rule of Reason," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 16(3), pages 259-273, December.
  • Handle: RePEc:sae:emffin:v:16:y:2017:i:3:p:259-273
    DOI: 10.1177/0972652717722085
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    References listed on IDEAS

    as
    1. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, April.
    2. Robin Burgess & Rohini Pande, 2005. "Do Rural Banks Matter? Evidence from the Indian Social Banking Experiment," American Economic Review, American Economic Association, vol. 95(3), pages 780-795, June.
    3. S P Talwar, 2001. "Competition, consolidation and systemic stability in the Indian banking industry," BIS Papers chapters, in: Bank for International Settlements (ed.), The banking industry in the emerging market economies: competition, consolidation and systemic stability, volume 4, pages 75-79, Bank for International Settlements.
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    More about this item

    Keywords

    Mergers; acquisitions; restructuring; government policy and regulation; antitrust law;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law

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