DOES BANK EFFICIENCY ENHANCE BANK PERFORMANCE? EMPIRICAL EVIDENCE FROM INDIAN BANKING

  • Bijoy Rakshit Indian Institute of Technology Ropar
  • Samaresh Bardhan Indian Institute of Technology Ropar
Keywords: Efficiency, Profitability, System-GMM, Indian banking

Abstract

This paper examines the effects of cost, revenue, profit efficiency, and stability inefficiency on bank profitability in India over the period 1997 to 2017. Additionally, this study examines the effect of efficiency on profitability for banks according to their ownership and for periods with (and without) the global financial crisis. The cost, revenue, and profit efficiency scores for 70 banks in India are estimated using stochastic frontier analysis. Our key findings are as follows. First, we find that cost, revenue and profit efficiencies positively influence the profitability conditions of Indian banks. Second, banks that are inefficient adversely influence bank performance, although the global financial crisis did not seem to impact the efficiency-profitability relationship. Finally, we find that bank ownership matters for the association between its efficiency and performance.

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Published
2022-01-31
How to Cite
Rakshit, B., & Bardhan, S. (2022). DOES BANK EFFICIENCY ENHANCE BANK PERFORMANCE? EMPIRICAL EVIDENCE FROM INDIAN BANKING. Buletin Ekonomi Moneter Dan Perbankan, 25, 103 - 124. https://doi.org/10.21098/bemp.v25i0.1844