IDEAS home Printed from https://ideas.repec.org/p/shs/wpaper/1104.html
   My bibliography  Save this paper

Financial Reforms and Technical Efficiency in Indian Commercial Banking: A Generalized Stochastic Frontier Analysis

Author

Listed:
  • Aditi Bhattacharyya

    (Department of Economics and International Business, Sam Houston State University)

  • Sudeshna Pal

    (Department of Economics and Finance, Georgia College and State University)

Abstract

In this study we estimate technical efficiency of Indian commercial banks from 1989- 2009 using a multiple-output generalized stochastic production frontier, and analyze the effects of financial sector reforms on measured efficiency. This generalized technique estimates technical efficiency in the presence of multiple outputs, filling a gap in the existing literature. Our results show that Indian commercial banks were operating with 64% efficiency on average during the sample period and that efficiency declined in both public and private banks during most parts of the post-reform period. The capital adequacy ratios negatively influenced efficiency while the number of branches had no significant effect on bank efficiency. Financial sector reforms, however, have had mixed results on technical efficiency. The initial phase of reform had positive impact on technical efficiency while the later phases adversely affected technical efficiency of commercial banks. Throughout the sample period, public sector banks show higher efficiency levels compared to private sector and foreign banks.

Suggested Citation

  • Aditi Bhattacharyya & Sudeshna Pal, 2011. "Financial Reforms and Technical Efficiency in Indian Commercial Banking: A Generalized Stochastic Frontier Analysis," Working Papers 1104, Sam Houston State University, Department of Economics and International Business.
    • Handle: RePEc:shs:wpaper:1104
    as

    Download full text from publisher

    File URL: http://www.shsu.edu/academics/economics-and-international-business/documents/wp_series/wp11-04_paper.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Sunil Kumar & Rachita Gulati, 2009. "Did efficiency of Indian public sector banks converge with banking reforms?," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 56(1), pages 47-84, March.
    2. Abiad, Abdul & Oomes, Nienke & Ueda, Kenichi, 2008. "The quality effect: Does financial liberalization improve the allocation of capital?," Journal of Development Economics, Elsevier, vol. 87(2), pages 270-282, October.
    3. Barth,James R. & Caprio,Gerard & Levine,Ross, 2008. "Rethinking Bank Regulation," Cambridge Books, Cambridge University Press, number 9780521709309, January.
    4. Levine, Ross, 2005. "Finance and Growth: Theory and Evidence," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 12, pages 865-934, Elsevier.
    5. Abhiman Das & Subal C. Kumbhakar, 2012. "Productivity and efficiency dynamics in Indian banking: An input distance function approach incorporating quality of inputs and outputs," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 27(2), pages 205-234, March.
    6. U.‐G. Gerdtham & M. Löthgren & M. Tambour & C. Rehnberg, 1999. "Internal markets and health care efficiency: a multiple‐output stochastic frontier analysis," Health Economics, John Wiley & Sons, Ltd., vol. 8(2), pages 151-164, March.
    7. K. R. Shanmugam & A. Das, 2004. "Efficiency of Indian commercial banks during the reform period," Applied Financial Economics, Taylor & Francis Journals, vol. 14(9), pages 681-686.
    8. Banerjee, Abhijit V. & Cole, Shawn & Duflo, Esther, 2005. "Banking Reform in India," India Policy Forum, National Council of Applied Economic Research, vol. 1(1), pages 277-332.
    9. Abhiman Das & Saibal Ghosh, 2006. "Financial deregulation and efficiency: An empirical analysis of Indian banks during the post reform period," Review of Financial Economics, John Wiley & Sons, vol. 15(3), pages 193-221.
    10. Löthgren, Mickael, 1996. "Generalized Stochastic Frontier Production Models," SSE/EFI Working Paper Series in Economics and Finance 149, Stockholm School of Economics, revised 03 Sep 1997.
    11. Lothgren, Mickael, 1997. "Generalized stochastic frontier production models," Economics Letters, Elsevier, vol. 57(3), pages 255-259, December.
    12. Sensarma, Rudra, 2006. "Are foreign banks always the best? Comparison of state-owned, private and foreign banks in India," Economic Modelling, Elsevier, vol. 23(4), pages 717-735, July.
    13. Montek S. Ahluwalia, 2002. "Economic Reforms in India Since 1991: Has Gradualism Worked?," Journal of Economic Perspectives, American Economic Association, vol. 16(3), pages 67-88, Summer.
    14. Zhao, Tianshu & Casu, Barbara & Ferrari, Alessandra, 2010. "The impact of regulatory reforms on cost structure, ownership and competition in Indian banking," Journal of Banking & Finance, Elsevier, vol. 34(1), pages 246-254, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Muneer Babu M. & Praveen Kulshreshtha, 2014. "Productivity Change and Technical Efficiency in Indian Microfinance Institutions," Studies in Microeconomics, , vol. 2(2), pages 165-200, December.
    2. Becerra-Perez, Luis & Lopez-Reyes, Luis, 2017. "Technical efficiency of corn production in Sinaloa, Mexico," Conference papers 332904, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Bhattacharyya, Aditi & Pal, Sudeshna, 2013. "Financial reforms and technical efficiency in Indian commercial banking: A generalized stochastic frontier analysis," Review of Financial Economics, Elsevier, vol. 22(3), pages 109-117.
    2. Aditi Bhattacharyya & Sudeshna Pal, 2013. "Financial reforms and technical efficiency in Indian commercial banking: A generalized stochastic frontier analysis," Review of Financial Economics, John Wiley & Sons, vol. 22(3), pages 109-117, September.
    3. Gulati, Rachita & Kumar, Sunil, 2016. "Assessing the impact of the global financial crisis on the profit efficiency of Indian banks," Economic Modelling, Elsevier, vol. 58(C), pages 167-181.
    4. Ghosh, Chinmoy & Hilliard, James & Petrova, Milena & Phani, B.V., 2016. "Economic consequences of deregulation: Evidence from the removal of voting cap in Indian banks," Journal of Banking & Finance, Elsevier, vol. 72(S), pages 19-38.
    5. Mostak Ahamed, M., 2017. "Asset quality, non-interest income, and bank profitability: Evidence from Indian banks," Economic Modelling, Elsevier, vol. 63(C), pages 1-14.
    6. Tzeremes, Nickolaos G., 2015. "Efficiency dynamics in Indian banking: A conditional directional distance approach," European Journal of Operational Research, Elsevier, vol. 240(3), pages 807-818.
    7. Fujii, Hidemichi & Managi, Shunsuke & Matousek, Roman, 2014. "Indian bank efficiency and productivity changes with undesirable outputs: A disaggregated approach," Journal of Banking & Finance, Elsevier, vol. 38(C), pages 41-50.
    8. Dipasha Sharma, 2018. "Stock Market Performance and Efficiency of Banks in a Developing Economy: Evidence from the Indian Banking Sector," IIM Kozhikode Society & Management Review, , vol. 7(2), pages 178-193, July.
    9. Sunil Kumar, 2013. "Banking reforms and the evolution of cost efficiency in Indian public sector banks," Economic Change and Restructuring, Springer, vol. 46(2), pages 143-182, May.
    10. Jaffry, Shabbar & Ghulam, Yaseen & Cox, Joe, 2008. "Labour use efficiency in the Indian and Pakistani commercial banks," Journal of Asian Economics, Elsevier, vol. 19(3), pages 259-293, June.
    11. K. Ravirajan & K.R. Shanmugam, 2021. "Efficiency of commercial banks in India after global financial crises," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(3(628), A), pages 65-82, Autumn.
    12. O’Toole Conor M., 2014. "Does Financial Liberalisation Improve Access to Investment Finance in Developing Countries?," Journal of Globalization and Development, De Gruyter, vol. 5(1), pages 41-74, June.
    13. Muneer Babu M. & Praveen Kulshreshtha, 2014. "Productivity Change and Technical Efficiency in Indian Microfinance Institutions," Studies in Microeconomics, , vol. 2(2), pages 165-200, December.
    14. Subhash Ray, 2011. "Impact of Liberalization and Globalization on Productivity in Indian Banking: A Comparative Analysis of Public Sector, Private, and Foreign Banks," Working papers 2011-27, University of Connecticut, Department of Economics.
    15. Subhash C. Ray & Abhiman Das & Kankana Mukherjee, 2017. "Labor-Cost Efficiency with Indivisible Outputs and Inputs: A Study of Indian Bank Branches," Working papers 2017-04, University of Connecticut, Department of Economics.
    16. Subhash C. Ray & Abhiman Das & Kankana Mukherjee, 2018. "Measures of Labor Use Efficiency from a Cost-Based Dual Representation of the Technology: A Study of Indian Bank Branches," Working papers 2018-17, University of Connecticut, Department of Economics.
    17. Seenaiah K & Badri Narayan Rath & Amaresh Samantaraya, 2015. "Determinants of Bank Profitability in the Post-reform Period: Evidence from India," Global Business Review, International Management Institute, vol. 16(5_suppl), pages 82-92, October.
    18. Jaffry, Shabbar & Ghulam, Yaseen & Cox, Joe, 2013. "Trends in efficiency in response to regulatory reforms: The case of Indian and Pakistani commercial banks," European Journal of Operational Research, Elsevier, vol. 226(1), pages 122-131.
    19. repec:unu:wpaper:wp2012-67 is not listed on IDEAS
    20. O’Toole Conor M., 2014. "Does Financial Liberalisation Improve Access to Investment Finance in Developing Countries?," Journal of Globalization and Development, De Gruyter, vol. 5(1), pages 1-34, June.
    21. Dipasha Sharma & Anil K. Sharma, 2015. "Influence of Turbulent Macroeconomic Environment on Productivity Change of Banking Sector: Empirical Evidence from India," Global Business Review, International Management Institute, vol. 16(3), pages 439-462, June.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:shs:wpaper:1104. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Christian Raschke (email available below). General contact details of provider: https://edirc.repec.org/data/deshsus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.