Financial Reforms and Technical Efficiency in Indian Commercial Banking: A Generalized Stochastic Frontier Analysis
Review of Financial Economics (2013), 22: 109 - 117
36 Pages Posted: 14 Jul 2014
Date Written: 2011
In this study we estimate technical efficiency of Indian commercial banks from 1989 to 2009, using a multiple-output generalized stochastic production frontier and analyze the effects of financial reforms on estimated efficiency.The generalized method estimates technical efficiency in the presence of multiple outputs, filling a gap in the existing literature. Our results show that Indian commercial banks were operating with 64% efficiency on average during the sample period. The initial phase of reform had a positive impact on while the later phase adversely affected technical efficiency of banks. Public sector banks show higher efficiency levels compared to private and foreign banks.
Keywords: Technical efficiency, Indian banks, Liberalization, Financial development, Stochastic production frontier
JEL Classification: D24, C23, G21, G28
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