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Bank Competition in India: Some New Evidence Using Risk-Adjusted Lerner Index Approach

Rakesh Arrawatia (), Arun Misra (), Varun Dawar () and Debasish Maitra ()
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Rakesh Arrawatia: Institute of Rural Management Anand, Anand 388001, India
Arun Misra: Vinod Gupta School of Management, Indian Institute of Technology, Kharagpur 721302, India
Varun Dawar: Department of Financial Studies, University of Delhi, New Delhi 110021, India
Debasish Maitra: Indian Institute of Management Indore, Indore 453556, India

Risks, 2019, vol. 7, issue 2, 1-12

Abstract: Banks in India have been gone through structural changes in the last three decades. The prices that bank charge depend on the competitive levels in the banking sector and the risk the assets and liabilities carry in banks’ balance sheet. The traditional Lerner Index indicates competitive levels. However, this measure does not account for the risk, and this study introduces a risk-adjusted Lerner Index for evaluating competition in Indian banking for the period 1996 to 2016. The market power estimated through the adjusted Lerner Index has been declining since 1996, which indicates an improvement in competitive condition for the overall period. Further, as indicated by risk-adjusted Lerner Index, the Indian banking system exerts much less market power and hence are more competitive contrary to what is suggested by traditional Lerner index.

Keywords: bank competition; Lerner index; banking regulation; banking risk (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 M2 M4 K2 (search for similar items in EconPapers)
Date: 2019
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