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Does Bank Efficiency Enhance Bank Performance? Empirical Evidence From Indian Banking

Author

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  • Bijoy Rakshit

    (Indian Institute of Technology Ropar)

  • Samaresh Bardhan

    (Indian Institute of Technology Ropar)

Abstract

This paper examines the effects of cost, revenue, profit efficiency, and stability inefficiency on bank profitability in India over the period 1997 to 2017. Additionally, this study examines the effect of efficiency on profitability for banks according to their ownership and for periods with (and without) the global financial crisis. The cost, revenue, and profit efficiency scores for 70 banks in India are estimated using stochastic frontier analysis. Our key findings are as follows. First, we find that cost, revenue and profit efficiencies positively influence the profitability conditions of Indian banks. Second, banks that are inefficient adversely influence bank performance, although the global financial crisis did not seem to impact the efficiency-profitability relationship. Finally, we find that bank ownership matters for the association between its efficiency and performance.

Suggested Citation

  • Bijoy Rakshit & Samaresh Bardhan, 2022. "Does Bank Efficiency Enhance Bank Performance? Empirical Evidence From Indian Banking," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 25(Special I), pages 103-124, March.
    • Handle: RePEc:idn:journl:v:25:y:2022:i:sph:p:103-124
    DOI: https://doi.org/10.21098/bemp.v25i0.1844
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    More about this item

    Keywords

    Efficiency; Profitability; System-GMM; Indian banking;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling

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