An assessment of foreign bank ownership’s direct and indirect effects on market power, efficiency, and stability in Indian banking produces two main results. First, foreign banks have greater market power, lower marginal cost of the production of bank output, greater price–cost margin, and higher insolvency risk than domestic banks. Second, greater foreign bank presence increases market power, reduces marginal cost of the production of bank output, increases price–cost margin, and reduces inefficiency, insolvency risk and net non-performing loan ratio of an individual bank. The findings have implications for a policy decision on foreign bank presence.
