Economic reforms and bank efficiency in developing countries: the case of the Indian banking industry

Abstract

Using the Indian banking industry as a case study, this paper proposes and tests hypotheses regarding the possibility of a relationship between three elements of the Economic Reforms (ERs) - namely, fiscal reforms, financial reforms, and private investment liberalisation - and bank efficiency in developing countries. Bank efficiency is measured using data envelopment analysis (DEA); the relationship between the measured efficiency and various bank-specific characteristics and environmental factors associated with the ERs is examined using the OLS and the GMM estimations. Our results show an improvement in the efficiency of banks, especially that of foreign banks, after the ERs. We find a positive relationship between the level of competition and bank efficiency. However, a negative relationship between the presence of foreign banks and bank efficiency is found, which we attribute to a short-run increase in costs due to the introduction of new banking technology by foreign banks. Furthermore, we find that fiscal deficits negatively influence bank efficiency.

Determinants of Productivity and Profitability of Indian Banking Sector: A Comparative Study

“…There are numerous studies which focus their analysis on the bank productivity of different countries. Like, Tina Zhang and Wang (2014) on Chinese banks; Rezitis (2006) and Chatzoglou et al (2010) on Greek banks; Ataullah and Le (2006), Kumar and Gulati (2008), Das (2010), and Kumar and Gulati (2010) for Indian banks; Berger and EJBE 2015, 8 (16) Mester (1999), and Elyasiani and Mehdian (1990) for U. S. banks; Sathye (2002) for Australian banks are some notable studies amongst others. Also, there are studies on profitability analysis of banks by different researchers like Ho and Tripe (2002); Guru et al (2002);DeYoung and Rice (2004); Haung and Chen (2006) and Pasiouras and Kosmidou (2007).…”

Are Saudi Banks Efficient? Evidence using Data Envelopment Analysis (DEA

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Impact of Cost Efficiency on Bank Capital and the Cost of Financial Intermediation: Evidence from BRICS Countries

“…For example, Wanke et al (2015) observe that the Brazilian government's aggressive reduction in the SELIC (Sistema Especial de Liquidação e Custodia) (i.e., the base-interest rate of Brazilian economy) and subsidized credit policies for real estate financing in 2007 have substantially impacted the efficiency of Brazilian banks. Ataullah and Le (2006) found that economic reforms, such as fiscal reforms, financial reforms, and private investment liberalization have significantly affected the efficiency of Indian banks. Huang et al (2017) find that all types of Chinese banks have upward trend in efficiency scores in fund collection and revenue generation activities over the period of 2004-2013 due to Chinese financial reforms.…”