How Does Ownership Affect Bank Performance?-The Case Of Indian Commercial Banks

Abstract

Financial system reforms in recent decades have significantly reshaped the Indian commercial banking system. Despite substantial changes in the ownership and structure of Indian Banking system, fewer reliable studies have been conducted to empirically investigate the effect of ownership on various performance dimensions. Drawing upon experiences of Indian commercial banks during 2002-2009, this study analyzes how state-owned, nationalized and domestic private banks are behind foreign banks, using data envelopment analysis together with three supplementary measures of performance. The findings suggest that the performance of domestic banks has not yet reached the level of foreign banks in terms of both cost and revenue efficiencies. Surprisingly, domestic private banks are the least efficient in the market. Though foreign banks outperform domestic counterparts in multiple aspects, their contribution for spreading banking services beyond metropolitan cities by establishing new branches is trivial and thus they make the least contribution to countrys financial deepening.

Does Ownership Structure Matter for Bank Performance in the MENA Region? An Empirical Evidence

“…This negative relationship between ISSN 1946-052X 2017 domestic private ownership and bank performance might be due to the high fixed costs they bear during the expansionary phase or the ineffective strategy to attract more customer deposits at low cost. The result is consistent with the result found by (Chaabane and Loukil, 2005;Sathye, 2003;Wanniarachchige, 2011).…”

“…The result is statistically significant at 5%. The positive effect of government ownership on bank performance is consistent with the previous results by Loukil and Chaabane, 2005;Sathye, 2003 andWanniarachchige, 2011 who refer the positive relation between state ownership and bank performance to the strong support of the government and long experience in the sector. Governmental banks may enjoy superior advantage in attracting customer deposits at lower costs compared to foreign and domestic private counterparts.…”

“…The findings reveal astatistically significant positive association between governmental ownership and the customer at 1% in the four models.This result is consistent with (Loukil and Chaabane, 2005;Sathye, 2003;Wanniarachchige, 2011).Governmental banks have superior advantage in attracting customer deposits at lower costs compared to the private counterparts, accordingly they have more credits transactions, investments and projects in different regions that are not reachable by their counterparts.…”

“…The regression results reveal a statistically significant positive association between foreign ownership and BSC index while domestic private ownership shows a statistically significant negative effect on the BSC index. In contrary with the social welfare theory and the political theory, government ownership has a statistically significant positive effect on the BSC index (Loukil and Chaabane, 2005;Sathye, 2003;Wanniarachchige, 2011).…”

The interrelationships among default risk, capital ratio and efficiency

“…Other studies documented conflicting results of the efficiency trend, the efficiency gap between public banks and private banks, and the effects of capital ratio and risk on efficiency. For example, Das et al (2005) and Sahoo and Mandal (2011) argued that there was an increase in efficiency of Indian banks, while Sensarma (2005), Kalluru (2009) and Wanniarachchige and Suzuki (2011) found the reverse. Also, the effects of capital ratio on profit efficiency were found to be positive in the study by Reddy and Nirmala (2013), but negative in the study by Das and Ghosh (2009).…”