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Information technology and profitability: evidence from Indian banking sector

Author

Listed:
  • Sangita Dutta Gupta
  • Ajitava Raychaudhuri
  • Sushil Kumar Haldar

Abstract

Purpose - Information Technology has transformed the banking sector with respect to various systems and processes. Banks have adopted various measures to quicken their business activity and also save cost and time. That is why there has been large requirement of IT in the banking sector. The question arises whether this investment is enhancing the profitability of the bank or not. The purpose of this paper is to examine the presence of profitability paradox in Indian Banking Sector. Design/methodology/approach - Data are collected from ten nationalized banks and three private sector banks from 2006 to 2013. The impact of IT expenditure on return on assets and profit efficiency is examined. Profit efficiency is determined using Stochastic Frontier Analysis. Data are collected from annual reports of the banks. Data on IT expenditure are collected through Right to Information Act 2005. Correlation and Panel Regression are used to investigate the relationship between IT expenditure and ROE or Profit Efficiency. Findings - The findings of the paper confirm the presence of profitability paradox in the Indian Banking sector. Research limitations/implications - Extension of this study to other developing countries of the world will help to identify if any common pattern is there among the developing countries as far as productivity or profitability paradox is concerned. Originality/value - There are some studies on the impact of IT on the banking sector in USA and Europe. This type of study however is rare in the context of India or for that matter other developing countries. Therefore, this paper will add new dimension to the existing literature and pave the way for future research in this area.

Suggested Citation

  • Sangita Dutta Gupta & Ajitava Raychaudhuri & Sushil Kumar Haldar, 2018. "Information technology and profitability: evidence from Indian banking sector," International Journal of Emerging Markets, Emerald Group Publishing Limited, vol. 13(5), pages 1070-1087, November.
    • Handle: RePEc:eme:ijoemp:ijoem-06-2017-0211
    DOI: 10.1108/IJoEM-06-2017-0211
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    Citations

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    Cited by:

    1. Helmi Hentati & Neila Boulila Taktak, 2023. "Unlocking Technological Capabilities to Boost the Performance of Accounting Firms," Journal of Accounting and Management Information Systems, Faculty of Accounting and Management Information Systems, The Bucharest University of Economic Studies, vol. 22(4), pages 631-656, December.
    2. K. Ravirajan & K. R. Shanmugam, 2023. "The Effect of Technology on Financial Performance of Indian Banks," Working Papers 2023-252, Madras School of Economics,Chennai,India.
    3. Bilel Jarraya & Hatem Afi & Anis Omri, 2023. "Analyzing the Profitability and Efficiency in European Non-Life Insurance Industry," Methodology and Computing in Applied Probability, Springer, vol. 25(2), pages 1-25, June.
    4. Sarika Lohana & Deepankar Roy, 2023. "Impact of Demographic Factors on Consumer’s Usage of Digital Payments," FIIB Business Review, , vol. 12(4), pages 459-473, December.
    5. Mohammad Ashraful Ferdous Chowdhury & Mohammad Abdullah & Nurun Nowshin Chowdhury Nazia & Debarshi Roy, 2023. "The nonlinear and threshold effects of IT investment on the banking sector of Bangladesh," Economic Change and Restructuring, Springer, vol. 56(6), pages 4253-4283, December.

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