RBI paper finds high market power can undermine bank stability

Author documents “inverse U-shaped” relationship, suggesting only some mergers are desirable

Indian banknotes

Indian banks’ market power is linked to the stability of the financial sector, a working paper published by the Reserve Bank of India finds.

Author Pradip Bhuyan notes the question is significant for India because of the recent “spate of consolidation” among public-sector banks. Since 2017, several of these banks have merged, culminating in a “mega consolidation” in 2020 that merged 10 banks into four.

Bhuyan studies bank balance sheet data for the period from 1994 to 2020. He finds the Indian

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