The competition enhances efficiency, innovation, productivity, growth and provides incentive for improvement. In the presence of competition, firms adjust operations to raise efficiency and thus maintain profitability, and less efficient firms exit the industry. The exit of these firms frees up resources, which can then be used by more efficient firms. Banking sector cannot become fully competitive alone unless the financial sector as a whole is opened up for global competition. With the growing competition due to liberalization and globalization, customer centric approach, survival of the fittest has become the order of the day in the banking industry. The present paper attempts to observe the performance of the scheduled commercial banks in the context of changed competitive environment, on account of the financial deregulation in the Indian economy. To be specific, it seeks answer to the following question: Have the financial reforms affected the market competition among public sector banks, private sector banks and foreign banks. It examines the competitive scenario in the Indian banking sector in the pre and post reform period. The competition among the different bank groups has been measured empirically by using statistical approach. Then results have been discussed and conclusions are drawn. Since scheduled commercial banks represent majority of commercial banking activity in India, the study is confined to the scheduled commercial banks only. The main objective of the paper is to analyze the impact of the banking sector reforms in India on the competitiveness of scheduled commercial banks in the pre and post reform period. The period under study is divided into two parts. The first period is called as pre-reform period and is considered to be representative enough to indicate the broad trends of the performance of the banks in the period prior to introduction of the financial sector reforms in India. The second period is called as the post-reforms period or-deregulation period. The year 1991-92 can be taken as a benchmark and from this year, the ushering of a new era of the financial sector seems to have begun. The present paper aims at analyzing the competitiveness of commercial banks as after math of banking reforms. Therefore, in order to study the actual impact of reforms, on the banks’ working it is important that performance of commercial banks in the post reform period should be compared with that of the pre reform ones, so that some relevant broad policy conclusions can be drawn.
Banking Reforms and The Competitiveness In Indian Banking
Abstract
