Date:22/12/2004 URL: http://www.thehindubusinessline.com/2004/12/22/stories/2004122200110801.htm

Back Bank mergers

There is a trend towards merger of banks in India with a view to making them strong and competitive in the international sphere. It is no doubt a laudable objective. But big is not necessarily beautiful. There is the demerit ofan adverse impact oncompetition in domestic banking. To the extent the number of banks gets reduced there is less competition than before.

In the United States, this aspect is one of the criteria for approving mergers under the anti-trust legislation. The judiciary uses the Hirschman-Herfindahl Index to find out whether a merger proposal in bankingor other areas will increase concentration of business andreduce competition in the markets.

The Indian authorities would do well to consider the impact on competition also in deciding on mergers.

A. Seshan

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