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Indian bank efficiency and productivity changes with undesirable outputs: A disaggregated approach

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  • Fujii, Hidemichi
  • Managi, Shunsuke
  • Matousek, Roman

Abstract

The objective of this study is to examine technical efficiency and productivity growth in the Indian banking sector over the period from 2004 to 2011. We apply an innovative methodological approach introduced by Chen et al. (2011) and Barros et al. (2012), who use a weighted Russell directional distance model to measure technical inefficiency. We further modify and extend that model to measure TFP change with NPLs. We find that the inefficiency levels are significantly different among the three ownership structure of banks in India. Foreign banks have strong market position in India and they pull the production frontier in a more efficient direction. SPBs and domestic private banks show considerably higher inefficiency. We conclude that the restructuring policy applied in the late 1990s and early 2000s by the Indian government has not had a long-lasting effect.

Suggested Citation

  • 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.
  • Handle: RePEc:eee:jbfina:v:38:y:2014:i:c:p:41-50
    DOI: 10.1016/j.jbankfin.2013.09.022
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    Keywords

    DEA; Efficiency; Bank; India; Non-performing loan;

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • P42 - Economic Systems - - Other Economic Systems - - - Productive Enterprises; Factor and Product Markets; Prices

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