Efficiency dynamics in Indian banking: A conditional directional distance approach

The paper contributes to the contemporary research on bank efficiency in India. We analyze the efficiency dynamics of the Indian banking industry from 2004 to 2012. Based on the recent methodological developments of the conditional and unconditional directional distances introduced by Daraio and Simar (2014), we apply a conditional directional distance estimator in order to analyze the dynamic effects of industry’s performance levels. The results indicate that foreign banks perform better compared to national and domestic private banks. There is also evidence of technological change at the period before the Global Financial Crisis. However during and after the Global Financial Crisis these gains diminished. The evidence suggests that national banks fail to sustain their high performance levels gained after the industry’s restructuring period. Finally, the findings support the view that ownership structure affects banks’ technical efficiency levels.