Banking Sector Deregulation and Productivity Change Decomposition of Indian Banks

Abstract

The competition in the Indian Banking Industry has intensified since the financial liberalization, which started in the early 1990s. The paper tries to examine changes in bank productivity growth through employing the Malmiquist Total Factor Productivity (TFP) indices. The study also decompounds the TFP change of banks into technological progress, pure technical efficiency and scale efficiency change. Overall total productivity growth of banks was almost stagnant during the study period. The contribution of technical progress towards productivity is decline, however, technical efficiency and scale efficiency has been improved for all banks. The highest TFP growth has been observed among public sector banks, followed by old private banks (mostly in terms of increasing efficiency in catching up with new private and foreign banks), while both new private banks and foreign banks recorded decline in TFP growth.

Keywords: total factor productivity, technical change

JEL Classification: Q1