Performance of Indian banks in the post-reform period: an analysis of efficiency of Public sector banks
AbstractFinancial sector plays an important role in the growth and development of an economy by acting as the bridge between the ultimate savors and the borrowers. Like other economies, Indian financial sector too is dominated by the banks. Among the banks it’s always been the public sector banks which have overtopped the banking industry in India. This has been partly because of India being on the path of development and banks being used for its attainment. In the Pre-Reform period (before 1992) banks were marred with the high SLR, CRR, directed credit and priority sector lending. This led to the sharp decline in the profitability and efficiency and hence, the banks remained stagnant. Reforms were undertaken in 1992, to liberalise the industry by dismantling of directed credit programme to some extent, decrease in statutory ratios, liberal entry of the domestic and foreign private banks, exposure of the banks to non-traditional activities etc. The sector has been deregulated in a phased manner rather in one go. Since, bank efficiency is the most essential parameter of the performance of banks; it would be insightful to examine whether the Reforms improved the efficiency of Indian banks during the post-reform period. Indian banking being heavily dominated by the Public sector, the paper analyses the Technical and Cost efficiency of the public sector banks from 1992 to 2014 using DEA. In this period, it was found that the overall technical efficiency declined on account of the scale inefficiency and there was only marginal increase in the cost efficiency owing to the high allocative inefficiency.
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