The Impact of Foreign Banks on Market Concentration: The Case of India

Abstract

In this paper we examine whether foreign banks presence has helped reduce concentration in the Indian banking market and thus increased competition among banks. Concentration has been measured using the Herfindahl-Hirschman Index of concentration and regressed on a set of explanatory variables derived from relevant theory and prior studies. A dummy variable has been added to measure the impact of ownership on concentration to answer our research question most directly. The results of the study show that entry of foreign banks did not have significant impact on reducing the level of concentration in the Indian banking market. This may be because of many restrictions still in place on foreign bank activities in India. Hence the current efforts being made to establish level playing field among all banks need to be continued so as to make Indian banking market.

Keywords: Market concentration, Indian economy, Foreign Banks

JEL Classification: G1, G2, D4