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Financial Deregulation and Profit Efficiency: A Non-parametric Analysis of Indian Banks

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  • Ghosh, Saibal

Abstract

The paper investigates the performance of Indian commercial banking sector during the post reform period 1992-2004. The results indicate high levels of efficiency in costs and lower levels in profits, reflecting the importance of inefficiencies on the revenue side of banking activity. The decomposition of profit efficiency shows that a large portion of outlay lost is due to allocative inefficiency. The proximate determinants of profit efficiency appears to suggest that big state-owned banks performed reasonably well and are more likely to operate at higher levels of profit efficiency. A close relationship is observed between efficiency and soundness as determined by bank’s capital adequacy ratio. The empirical results also show that the profit efficient banks are those that have, on an average, less non-performing loans.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 24292.

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Date of creation: Nov 2009
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Publication status: Published in Journal of Economics and Business 6.61(2009): pp. 509-528
Handle: RePEc:pra:mprapa:24292

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Keywords: Indian Banks; Deregulation; Profit efficiency; DEA model;

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  1. Paul W. Bauer & Allen N. Berger & Gary D. Ferrier & David B. Humphrey, 1997. "Consistency conditions for regulatory analysis of financial institutions: a comparison of frontier efficiency methods," Financial Services working paper 97-02, Federal Reserve Bank of Cleveland.
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  14. Stiroh, Kevin J, 2004. "Diversification in Banking: Is Noninterest Income the Answer?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(5), pages 853-82, October.
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  17. Stiroh, Kevin J & Strahan, Philip E, 2003. " Competitive Dynamics of Deregulation: Evidence from U.S. Banking," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(5), pages 801-28, October.
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Citations

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Cited by:
  1. Fadzlan Sufian, 2012. "Determinants of multinational banks’ subsidiary performance: the host and home country effects," Journal of Economic and Administrative Sciences, Emerald Group Publishing, vol. 28(2), pages 130-155, August.
  2. 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.
  3. Ghosh, Saibal, 2010. "Credit Growth, Bank Soundness and Financial Fragility: Evidence from Indian Banking Sector," MPRA Paper 24715, University Library of Munich, Germany.
  4. Javier E. Pirateque & José H. Piñeros & Linda Mondragón, 2013. "Eficiencia de los establecimientos bancarios (EB): una aproximación mediante modelos DEA," Borradores de Economia 798, Banco de la Republica de Colombia.
  5. Zhang, Jianhua & Jiang, Chunxia & Qu, Baozhi & Wang, Peng, 2013. "Market concentration, risk-taking, and bank performance: Evidence from emerging economies," International Review of Financial Analysis, Elsevier, vol. 30(C), pages 149-157.
  6. Javier E. Pirateque & José H. Piñeros & Linda Mondragón, 2013. "Eficiencia de los establecimientos bancarios (EB): una aproximación mediante modelos DEA," BORRADORES DE ECONOMIA 011103, BANCO DE LA REPÚBLICA.
  7. Lee, Tung-Hao & Chih, Shu-Hwa, 2013. "Does financial regulation affect the profit efficiency and risk of banks? Evidence from China's commercial banks," The North American Journal of Economics and Finance, Elsevier, vol. 26(C), pages 705-724.
  8. Ghosh, Saibal, 2009. "Does activity mix and funding strategy vary across ownership? Evidence from Indian banks," MPRA Paper 32070, University Library of Munich, Germany.
  9. Ghosh, Saibal, 2010. "How did state-owned banks respond to privatization? Evidence from the Indian experiment," MPRA Paper 24716, University Library of Munich, Germany.
  10. Ghosh, Saibal, 2013. "Macroprudential Regulation and Bank Performance: Evidence from India," MPRA Paper 51226, University Library of Munich, Germany.
  11. Jia-Ching Juo, 2014. "Decomposing the change in profit of Taiwanese banks: incorporating risk," Journal of Productivity Analysis, Springer, vol. 41(2), pages 247-262, April.

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