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A STUDY ON OPERATIONAL EFFICIENCY OF SCHEDULED COMMERCIAL BANKS IN INDIA

R., Sangeetha (2015) A STUDY ON OPERATIONAL EFFICIENCY OF SCHEDULED COMMERCIAL BANKS IN INDIA. PhD thesis, CHRIST(Deemed to be University).

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Abstract

Banking institutions play an important role in the economic development of the entire nation. Financial services industry is dominated by banking sector. Performance of any economy largely depends on the efficiency of commercial banks. Efficiency of banks depends upon diversified banking system that attracts savings and channelizes them into productive investments to generate income. The strength of the bank depends on efficiency of these operations. Banks need to convert its deposits into loans, advances and investments efficiently. Efficiency in operations results in productivity. Productivity brings in faster economic growth. The cost of these operations should be kept to the minimum in order that they are efficient. With stiff competition that characterises banking industry, the competitive advantage that one bank has over the other depends on various efficiencies. This research attempts to measure the various efficiencies of scheduled commercial banks in India and investigate the factors that influence the same. Review of related Literature has been carried out to identify the research gap. Scheduled commercial banks in India include public sector banks, private sector banks, foreign banks and regional rural banks. Regional rural banks are excluded from the study. As per the RBI report, currently (as on 31 March 2014) there are 26 public sector banks, 22 private sector banks and 43 foreign banks. However, this study considers the banks which have existed before, during and after the study period in order to measure the technical and cost efficiency of each bank and compare those efficiencies within the group as well as across the group. Accordingly 25 PSBs, 18 PvSBs and 25 FBs have been considered for the present study. Operational efficiency in this study includes the banks with technical and cost efficiency. Technical efficiency is measured using the primary operating variables like fixed assets, loanable funds, employees, loans & advances and investments. Along with these variables input prices are also used to measure the Cost efficiency. Secondary data have been used to study the operational efficiency of selected Scheduled Commercial banks in India. The data have been collected from the published sources like RBI website, CMIE (Center for Monitoring Indian Economy) data base and Indian Banks‟ Association (IBA). This study covers a period of twelve years between 2001-02 and 2012-13. The total study period has been divided into two taking 2007 – 08 as the starting of crisis period. It means that the period between 2001-02 and 2006-07 has been considered as pre financial crisis period. Post financial crisis period includes 2007-08 to 2012-13. After identifying the level of efficiencies of scheduled commercial banks, the determinants of such efficiency have been traced using Tobit regression. Among the two ways of measuring the efficiency of banking sector namely Data Envelopment Techniques and standard accounting measures, Data Envelopment Analysis (DEA) is considered as the best tool to analyse the efficiency of decision making units of banks. The present study uses DEA to measure the technical efficiency and cost efficiency of scheduled commercial banks in India. Technical efficiency of the bank is its ability to transform multiple resources into multiple financial services (Bhattacharyya, 1997). Technical efficiency is decomposed into Pure Technical Efficiency (PTE) and Scale Efficiency (SE). This decomposition helps to identify the sources of technical inefficiency. DEA gives the results in the form of zero and one, zero indicating no efficiency, one indicating 100 percent efficiency and less than one but greater than zero indicating inefficiency. Technical inefficiency (TIE), Pure Technical inefficiency (PTIE) and Scale inefficiency (SIE) is derived by using (1-TE), (1-PTE) and (1-SE). A bank that makes optimum use of its resources without any wastage of resources, does optimum allocation of input resources with minimum cost, and produces a given level of output is said to be cost efficient. The growth in the productivity level of the banks is measured using Malmquist Productivity Index (MPI). The indices of MPI are less than one, one and greater than one. To estimate the growth rate, one is subtracted from the indices and then the value is multiplied with 100 to get the growth rate in percentage. If the index is more than one, the bank is said to be with positive growth in TFP and less than one is with negative growth. In the second level Tobit regression is applied to identify the determinants of various efficiencies. Based on the TE and CE score attained by the banks during pre period in three groups, the best performers have been identified. The score of these banks during the post period have been checked to know the impact of financial crisis on the efficiency of banks in India. It has been revealed that, the chosen banks with best performance have experienced a downtrend in the efficiency level during the post period. Out of six banks, only two banks have depicted a growth in their efficiency level. In the case of PvSBs HDFC bank is the only bank among all the three groups that has maintained 100 percent in all types of efficiencies during pre period. However, it has lost its 100 percent efficiency during post period.v A scrutiny on the remaining best performers has exhibited a fact that, PvSBs group also is affected by the financial crisis. However, there have been six banks identified as the best performers in PSBs and PvSBs, FBs have had only four banks as the best performers. Nevertheless, the efficiency scores maintained by FBs have depicted an interesting fact that, post period efficiency scores have experienced an improvement. An in depth analysis on the efficiency scores maintained by FBs has revealed that better allocation during the post period has given them an improved efficiency score than the other two categories of banks. However, there has been an impact created by the financial crisis on the efficiency scores of the PSBs and PvSBs; they have possessed a higher efficiency score than FBs. The second stage analysis i.e., determinants of efficiency has shown that the primary operating variables have significantly influenced the TE scores. Precisely the TE of PSBs and FBs have been influenced more by investments than the advances. This is an indication to the policy makers that the loanable funds i.e., deposits and borrowings should be converted into investments. However, PvSBs point out that it is the advances that determine TE than investments. Therefore, loanable funds have to be converted in the form of advances more effectively. The Analysis also reveals that then CE scores have not influenced by price of input variables. However, it is advances of PSBs and PvSBs and, investments of FBs determine the CE score. Hence, it can be concluded the contribution of investments, loanable funds and employee to the efficiencies is more pronounced than the other variables. A better efficiency score can be achieved if these variables are taken care of by policy makers and bank management.

Item Type:Thesis (PhD)
Subjects:Thesis > Ph.D > Commerce
Thesis
Thesis > Ph.D
ID Code:7839
Deposited By:Shaiju M C
Deposited On:18 May 2019 14:07
Last Modified:28 May 2019 12:53

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