Journal Press India^®

Author Details ( * ) denotes Corresponding author

Purpose: The present paper focuses on the very core function of banking segments understudy. As a part of a larger study on applying Structure-Conduct-Performance approach to banking, this paper aims at understanding whether the new private banks have been able to mark their existence in terms of examining changes in conduct of Indian banking industry in terms of its liability structure, that is, ratio of demand deposits to total deposits, ratio of term deposits to total deposits and ratio of demand deposits to term deposits.

Design/Methodology/Approach: Fixed Effects Panel Regression Model has been used. For this purpose, balance panel has been constructed for the four banking segments understudy for the period ranging 1995-96 to 2009-10.

Findings: The results show that incumbents are losing business to new private sector banks in terms of demand deposits as ratio of demand deposits to total deposits is significantly waning in case of existing banking segments while the same is slowly and constantly rising for new private banks.

Research Limitations/Implications: The limitation of the study is that time-period is limited upto 2009-10 as data was available till 2009-10 when study was carried out.

Practical Implications: These results indicate that competition has actually ushered in Indian banking as a result of banking reforms by allowing entry to new banks in the private sector. As on the one hand, existing banks are losing to new banks in terms of demand deposits still maintaining their stability in form of term deposits and giving competition to new banks. On the other hand, new private banks have marked their presence as regards to demand deposits but losing in form of term deposits. Another interesting implication of these results is that competition has emerged in the form of incumbents vs. new banks rather than public banks vs. private banks.

Originality/Value: It is original piece of work. It tests the impact of liberalization on competition in the banking segments of India in terms of their liability structure specially demand deposits and term deposits.

Keywords

Banking Reforms, Competition, Banking Segments, Liability Structure, Demand deposits, Term Deposits

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