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Non-Parametric Analysis of Efficiency Gains from Bank Mergers in India

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  • Adrian R. Gourlay

    ()
    (Dept of Economics, Loughborough University)

  • Geetha Ravishankar

    ()
    (Dept of Economics, Loughborough University)

  • Tom Weyman-Jones

    ()
    (Dept of Economics, Loughborough University)

Abstract

This paper offers an insight into the effectiveness of economic policy reforms in the Indian Banking System by examining the efficiency benefits of mergers among Scheduled Commercial Banks in India over the post-reform period 1991-92 to 2004-05. It does this by using the methodology developed by Bogetoft and Wang (2005). We also provide a metric for judging the success or failure of a merger. Overall, we find that bank mergers in the post-reform period possessed Considerable potential efficiency gains stemming from harmony gains. Post-merger efficiency analysis of the merged bank with a control group of non-merging banks reveals an initial merger related efficiency advantage for the former that, while persistent, did not show a sustained increase this failing to provide merging banks with a competitive advantage vis-a-viz their non-merging counterparts.

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Bibliographic Info

Paper provided by Department of Economics, Loughborough University in its series Discussion Paper Series with number 2006_18.

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Date of creation: Oct 2006
Date of revision: Oct 2006
Handle: RePEc:lbo:lbowps:2006_18

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Keywords: Data Envelopment Analysis; Mergers; Banking; Intermediation Approach; Production Approach.;

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References

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  1. Koetter, Michael, 2005. "Evaluating the German bank merger wave," Discussion Paper Series 2: Banking and Financial Studies 2005,12, Deutsche Bundesbank, Research Centre.
  2. 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.
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  7. R. D. Banker & A. Charnes & W. W. Cooper, 1984. "Some Models for Estimating Technical and Scale Inefficiencies in Data Envelopment Analysis," Management Science, INFORMS, vol. 30(9), pages 1078-1092, September.
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  11. Peter Bogetoft & Dexiang Wang, 2005. "Estimating the Potential Gains from Mergers," Journal of Productivity Analysis, Springer, vol. 23(2), pages 145-171, 05.
  12. P.L. Beena, 2000. "An analysis of mergers in the private corporate sector in India," Centre for Development Studies, Trivendrum Working Papers 301, Centre for Development Studies, Trivendrum, India.
  13. Mester, Loretta J., 1996. "A study of bank efficiency taking into account risk-preferences," Journal of Banking & Finance, Elsevier, vol. 20(6), pages 1025-1045, July.
  14. P.L. Beena, 2004. "Towards understanding the merger-wave in the Indian corporate sector: A comparative perspective," Centre for Development Studies, Trivendrum Working Papers 355, Centre for Development Studies, Trivendrum, India.
  15. Bhattacharyya, Arunava & Lovell, C. A. K. & Sahay, Pankaj, 1997. "The impact of liberalization on the productive efficiency of Indian commercial banks," European Journal of Operational Research, Elsevier, vol. 98(2), pages 332-345, April.
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Cited by:
  1. 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.

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