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Impact of Liquidity on the Efficiency of Banks in India Using Panel Data Analysis

Author

Listed:
  • Anureet Virk Sidhu

    (Symbiosis Institute of Business Management, Symbiosis International (Deemed University), Pune 412115, India)

  • Rebecca Abraham

    (Huizenga College of Business, Nova South Eastern University, 3301 College Avenue, Fort Lauderdale, FL 33314, USA)

  • Venkata Mrudula Bhimavarapu

    (Symbiosis School of Banking and Finance, Symbiosis International (Deemed University), Pune 412115, India)

  • Jagjeevan Kanoujiya

    (Symbiosis Institute of Business Management, Symbiosis International (Deemed University), Pune 412115, India)

  • Shailesh Rastogi

    (Symbiosis Institute of Business Management, Symbiosis International (Deemed University), Pune 412115, India)

Abstract

The current study investigates the impact of the liquidity coverage ratio (LCR) on the efficiency of Indian banks for the period 2010 to 2019. The study examines the effect of internal bank elements like ownership structure, transparency and disclosure, and technological advancement on the relationship between the LCR and efficiency. Bank efficiency proxied as technical efficiency is evaluated by applying the data envelope analysis approach. Applying the panel data regression technique, the authors discover that the LCR has a positive impact on the technical efficiency at a constant return to scale of banks. The relationship between the LCR and the technical efficiency at a variable return to scale is non-linear. Initially, as liquidity increases, the efficiency of banks improves, after reaching its optimum level, efficiency starts to decline. Furthermore, liquidity tends to improve efficiency of banks with higher promoter stakes, whereas opposing results are evidenced for institutional investors and technological advancement.

Suggested Citation

  • Anureet Virk Sidhu & Rebecca Abraham & Venkata Mrudula Bhimavarapu & Jagjeevan Kanoujiya & Shailesh Rastogi, 2023. "Impact of Liquidity on the Efficiency of Banks in India Using Panel Data Analysis," JRFM, MDPI, vol. 16(9), pages 1-19, August.
    • Handle: RePEc:gam:jjrfmx:v:16:y:2023:i:9:p:390-:d:1230254
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    References listed on IDEAS

    as
    1. Berger, Allen N. & Humphrey, David B., 1997. "Efficiency of financial institutions: International survey and directions for future research," European Journal of Operational Research, Elsevier, vol. 98(2), pages 175-212, April.
    2. repec:hal:journl:hal-00785225 is not listed on IDEAS
    3. Barry, Thierno Amadou & Lepetit, Laetitia & Tarazi, Amine, 2011. "Ownership structure and risk in publicly held and privately owned banks," Journal of Banking & Finance, Elsevier, vol. 35(5), pages 1327-1340, May.
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