Impact of Merger on Efficiency, Stability, and Competitiveness of Public Sector Banks

Abstract

This study examined whether the bank’s merger enhances competitiveness, stability, and an efficient banking system. Further, this paper examined the relationship between High-Powered Money and the six mentioned explanatory variables with the help of the Panel Data Model. We used the Reserve Bank of India dataset from 2009 to 2021 to explore the relationship. We observed that High-Powered Money has increased, and the closing balance of non-performing assets has decreased after the merger of the Indian banks. In addition, we have seen that high powered money has a positive and significant relationship with the capital-to-risk-weighted assets ratio and is negatively related to the Credit-Deposit Ratio and the Investment-Deposit Ratio. In addition, we observed that return on investments is positively associated with high powered money. These estimates show that Indian public sector banks have become competitive, financially stable, and efficient after the merger of banks. At the same time, we did not see a significant relationship between the return on investments and the Total Assets to Total Income Ratio.