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Risk and Productivity Change of Public Sector Banks

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  • Abhiman Das

    (Reserve Bank of India)

Abstract

While the relationship between portfolio risk and capital and its interrelationship with operating efficiency has been explored elsewhere, limited evidence has been forthcoming on the interrelationships among capital, non-performing loans and productivity. The paper makes an attempt to examine the same in the Indian context. Using data on public sector banks (PSBs) for the period 1995-96 through 2000-2001, the paper finds capital, risk and productivity change to be intertwined, with each reinforcing and to a degree,complementing the other. The results imply that inadequately capitalised banks have lower productivity and are subject to a higher degree of regulatory pressure than adequately capitalised ones. Finally, the results lend some credence to the belief that lowering government ownership tends to improve productivity.

Suggested Citation

  • Abhiman Das, 2004. "Risk and Productivity Change of Public Sector Banks," Industrial Organization 0411002, EconWPA.
  • Handle: RePEc:wpa:wuwpio:0411002 Note: Type of Document - pdf; pages: 12. Published in 'Economic and Political Weekly' February 2, 2002
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    References listed on IDEAS

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    1. Linda Allen & Julapa Jagtiani, 1997. "Risk and Market Segmentation in Financial Intermediaries' Returns," Journal of Financial Services Research, Springer;Western Finance Association, pages 159-173.
    2. Gorton, Gary & Rosen, Richard, 1995. " Corporate Control, Portfolio Choice, and the Decline of Banking," Journal of Finance, American Finance Association, vol. 50(5), pages 1377-1420, December.
    3. Saunders, Anthony & Strock, Elizabeth & Travlos, Nickolaos G, 1990. " Ownership Structure, Deregulation, and Bank Risk Taking," Journal of Finance, American Finance Association, vol. 45(2), pages 643-654, June.
    4. Shrieves, Ronald E. & Dahl, Drew, 1992. "The relationship between risk and capital in commercial banks," Journal of Banking & Finance, Elsevier, vol. 16(2), pages 439-457, April.
    5. Gilbert, R. Alton & Wilson, Paul W., 1998. "Effects of Deregulation on the Productivity of Korean Banks," Journal of Economics and Business, Elsevier, pages 133-155.
    6. Jacques, Kevin & Nigro, Peter, 1997. "Risk-based capital, portfolio risk, and bank capital: A simultaneous equations approach," Journal of Economics and Business, Elsevier, pages 533-547.
    7. Charles Dufour & Paul Lanoie & Michel Patry, 1998. "Regulation and Productivity," Journal of Productivity Analysis, Springer, pages 233-247.
    Full references (including those not matched with items on IDEAS)

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    JEL classification:

    • L - Industrial Organization

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