There is a difference of opinion between RBI and various ministries on the jurisdiction of the Competition Commission of India over bank mergers (“Stalemate in RBI, competition panel talks over bank M&As”, March 15). The argument of RBI that mergers of banks come under its purview is not tenable now that the super-regulatory authority, the Financial Stability and Development Council, is proposed to be set up. There are regulators for other areas covered by the Commission also. The effect of mergers on competitiveness in the market needs to be assessed.
In implementing anti-trust legislation, the US Department of Justice (USDJ) uses the Herfindahl-Hirschman Index, inter alia, to decide whether mergers in any field are to be approved. It is a measure of market concentration. It is calculated by squaring the market share of each firm and then adding the resulting numbers. The Index may range from near-zero (perfect competition) to 10,000 (monopoly). The USDJ considers a market with an index value of less than 1,000 competitive, 1,000-1,800 moderately concentrated and 1,800 or greater highly concentrated. As a general rule, mergers that increase the index by more than 100 points in concentrated markets raise anti-trust concerns. Indian authorities would do well to consider the index in taking a decision on bank mergers.
Banks should take the organic route to grow and not resort to short cuts in M&As.
A Seshan, on email
