Description:
This study examines the impact of competition on the loan price and liquidity of Indian banks. Using a sample of 38 public and private banks from 2010 to 2020, we explore the evolving dynamics between competition, liquidity and pricing in the Indian banking system. Our findings show that large banks do not exert competitive pressure despite having a large asset base, high capitalisation and branch networks. Profitable banks, on the other hand, are financing riskier loans and gaining market power. The study disproves the ownership and price neutrality hypothesis, discovering that public banks have more market power, charge less on loans and are less liquid than private banks. Furthermore, the study rejects the size neutrality hypothesis regarding liquidity, which holds that large and well-capitalised banks are less liquid than small banks. The empirical analysis reveals a significant degree of the banking system’s interrelationship among competition, liquidity and loan price. The network-based analysis reveals a positive relationship between banking system liquidity and market power and a negative association with loan price