Ghosh, Saibal (2009): Financial Deregulation and Profit Efficiency: A Non-parametric Analysis of Indian Banks. Published in: Journal of Economics and Business , Vol. 61, No. 6 (November 2009): pp. 509-528.
Download (230Kb) | Preview
The paper investigates the performance of Indian commercial banking sector during the post reform period 1992-2004. The results indicate high levels of efficiency in costs and lower levels in profits, reflecting the importance of inefficiencies on the revenue side of banking activity. The decomposition of profit efficiency shows that a large portion of outlay lost is due to allocative inefficiency. The proximate determinants of profit efficiency appears to suggest that big state-owned banks performed reasonably well and are more likely to operate at higher levels of profit efficiency. A close relationship is observed between efficiency and soundness as determined by bank’s capital adequacy ratio. The empirical results also show that the profit efficient banks are those that have, on an average, less non-performing loans.
|Item Type:||MPRA Paper|
|Original Title:||Financial Deregulation and Profit Efficiency: A Non-parametric Analysis of Indian Banks|
|Keywords:||Indian Banks; Deregulation; Profit efficiency; DEA model|
|Subjects:||G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks; Depository Institutions; Micro Finance Institutions; Mortgages|
|Depositing User:||Saibal Ghosh|
|Date Deposited:||10. Aug 2010 05:54|
|Last Modified:||14. Feb 2013 09:08|
Ahluwalia M.S. (2002): “Economic Reforms in India Since 1991: Has Gradualism Worked?”, Journal of Economic Perspectives, 16, 67-88.
Akhigbe, A. and J.E. McNulty (2003): “The profit efficiency of small US commercial banks”, Journal of Banking and Finance, 27, 307–325.
Amel, D., C. Barnes, F. Panetta and C. Salleo (2004): “Consolidation and efficiency in the financial sector: A review of the international evidence,” Journal of Banking and Finance, 28, 2493-2519.
Banker, R.D., A. Charnes and W. W. Cooper (1984): “Some Models for Estimating Technical and Scale Inefficiencies in Data Envelopment Analysis”, Management Science, 30, 1078-1092.
Barr, R.S., K.A. Killgo, T.F. Siems and S. Zimmel (2000): “Evaluating the Productive Efficiency and Performance of U.S. Commercial Banks”, Managerial Finance, 28, 3-25.
Bauer, P.W., A.N. Berger, G.D. Ferrier and D.B. Humphrey (1998): “Consistency conditions for Regulatory Analysis of Financial Institutions: A Comparison of Frontier Efficiency Methods”, Journal of Economics and Business, 50, 85-114.
Berger, A.N. and L.J. Mester (2003): "Explaining the dramatic changes in performance of US banks: technological change, deregulation, and dynamic changes in competition," Journal of Financial Intermediation, 12, 57-95.
Berger, A.N., D.B. Humphrey (1992), “Measurement and efficiency issues in commercial banking” in Z. Griliches (ed.), Output Measurement in the Service Sector, National Bureau of Economic Research, Studies in Income and Wealth, University of Chicago Press, IL, 245-279.
Berger, A.N. and D.B. Humphrey (1997): “Efficiency of Financial Institutions: International Survey and Directions for Future Research”, European Journal of Operations Research, 98, 175-212.
Bhattacharyya, A., C.A.K. Lovell and P. Sahay (1997): “The Impact of Liberalisation on the Productive Efficiency of Indian Commercial Banks”, European Journal of Operations Research, 98, 332-345.
Bonin, J.P., I. Hassan and P. Wachtel (2005): Bank performance, efficiency and ownership in transition countries, Journal of Banking and Finance, 29, 31–53.
Chatterjee, G. (2006): “Is Efficiency of Banks in India a Cause for Concern? Evidence from Post-reform Era”, forthcoming, Journal of Emerging Market Finance.
Charnes, A., W.W. Cooper and E. Rhodes (1978): “Measuring the Efficiency of Decision Making Units”, European Journal of Operations Research, 2, 429-444.
Clark, J.A. and T.F. Siems (2002): “X-Efficiency in Banking: Looking beyond the Balance Sheet”, Journal of Money, Credit, and Banking, 34, 987-1013.
Das, Abhiman (1997): “Technical, Allocative and Scale Efficiency of Public Sector Banks in India”, Reserve Bank of India Occasional Papers, June-September, 18, 279-301.
Das, Abhiman, A.K. Nag and S.C. Ray (2005): “Liberalization, Ownership and Efficiency in Indian Banking”, Economic and Political Weekly, 40, 1190-1197.
Gilbert, R.A. and P.W. Wilson (1998): “Effects of Deregulation on the Productivity of Korean Banks”, Journal of Economics and Business, 50, 133-155.
Government of India (1991): Report of the Committee on the Financial System, Government of India: New Delhi.
Government of India (1998): Report of the Committee on Banking Sector Reforms, Government of India: New Delhi.
Hao, J, C.W. Hunter and W.K. Yang (2001): “Deregulation and Efficiency: The Case of Private Korean Banks”, Journal of Economics and Business, 53, 237-254.
Ishik I. and M. K. Hassan (2003): Efficiency, Ownership and Market Structure, Corporate Control and Governance in the Turkish Banking Industry” Journal of Business Finance and Accounting, 30, 1363-1421.
Jalan, B. (2002). ‘Indian Banking and Finance: Managing New Challenges’, Speech delivered at the Bank Economists’ Conference, Kolkata, January 14.
Karim, M.Z.A. (2001): “Comparative bank efficiency across select ASEAN countries”, ASEAN Economic Bulletin, 18, 289-304.
Kawn S.H. (2003): Operating performance of banks among Asian economies: An international and time series comparison, Journal of Banking and Finance 27, 471–489.
Kumbhakar, S. C. and S. Sarkar (2005): “Deregulation, Ownership and Efficiency Change in Indian Banking: An application of Stochastic Frontier Analysis”, in Theory and Application of Productivity and Efficiency, Econometric and DEA Approach, Ghosh, R. and C. Neogi, eds., Macmillan, India.
Kumbhakar, S. C. and S. Sarkar (2003): “Deregulation, Ownership and Productivity Growth in the Banking Industry: Evidence from India”, Journal of Money, Credit, and Banking, 35, 403-414.
Leightner, E.J and C.A.K. Lovell (1998): “The Impact of Financial Liberalization on the Performance of Thai Banks”, Journal of Economics and Business, 50, 115-132.
Mohan, R. (2006): “Reforms, Productivity and Efficiency in Banking: The Indian Experience”, Address delivered at the Conference of the Pakistan Society of Development Economicts, Islamabad. Available at <www.rbi. org.in>
Rammohan, T.T. (2002): “Deregulation and Performance of Public Sector Banks”, Economic and Political Weekly, 37, 393-397.
Rammohan, T.T. (2003): “Long-Run Performance of Public and Private Sector Bank Stocks”, Economic and Political Weekly, 38, 785-788.
Rammohan, T.T. and S.C. Ray (2004): “Comparing Performance of Public and Private Sector Banks: A Revenue Maximisation Efficiency Approach”, Economic and Political Weekly, 39, 1271-1276.
Reddy Y.V. (2002): “Public Sector Banks and the Governance Challenge: Indian Experience”, Lecture delivered at the World Bank, IMF and Brookings Institutions Conference.
Reserve Bank of India (1954): All India Rural Credit Survey Committee, Mumbai.
Reserve Bank of India: Statistical Tables Relating to Banks in India (various years), RBI: Mumbai.
Sarkar, J., S. Sarkar, and S.K. Bhaumik (1998): “Does Ownership Always Matter? Evidence from the Indian Banking Industry”, Journal of Comparative Economics, 26, 262-281.
Shanmugam, K.R. and Abhiman Das (2004): Efficiency of Indian Commercial Banks during Reform Period, Applied Financial Economics, 14, 681-686.
Shyu, J. (1998): “Deregulation and Bank Operating Efficiency: An Empirical Study of Taiwan Banks”, Journal of Emerging Markets, 3, 27-46.
Stiroh, K (2004): “Diversification in Banking: Is Noninterest Income the Answer?” Journal of Money, Credit, and Banking, 36, 853-882.
Stiroh, K. and P.E. Strahan (2003): “Competitive Dynamics of Deregulation: Evidence from U.S. Banking”, Journal of Money, Credit, and Banking, 35, 801-828.
Vander Vennet, R (2002): “Cost and Profit Efficiency of Financial Conglomerates and Universal Banks in Europe”, Journal of Money, Credit, and Banking, 34, 254-282.
Williams J. and N. Nguyen (2005): “Financial liberalisation, crisis, and restructuring: A comparative study of bank performance and bank governance in South East Asia”, Journal of Banking and Finance, 29, 2119–2154.