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An empirical analysis of banking Sector efficiency in emerging economies

Publisher : International Journal of Pure and Applied Mathematics

Campus : Kochi

School : School of Business

Year : 2018

Abstract : Purpose:The intention of this paper is to investigate the effect of size, capitalization and nonperforming assets on the cost efficiency of Indian banks. Design:The sample includes 50 Indian comprising of more than ninety percent of assets in the Indian commercial banking system during 2006-2017. Cost efficiency of the banks is estimated from Stochastic Frontier Analysis (SFA) during the period 2006-2017. Findings:The empirical results reveal that there is variation inefficiencies which is significant among the banks.Efficiency of the banks on an average is also found to be improving temporally. Bank capitalization contributes negatively whereas, bank size contribute positively to bank's cost efficiency. Research Limitation:Since estimated values of efficiency were transformed to log, the total observations by efficiency scores which is undefined results indata loss. Even though there has been extensive research on efficiency using the two-stage approach in the past, Greene(2008) points out that this approach leads biased results. Practical implications:The results are relevant for the Indian banking system which is presently grappling with the problem of bad loans and undercapitalization. Our study highlights the effectof the capital and size on the efficiency and also highlights its effect on different types of banks. Originality/value: Study contributes to the differential impact of cost efficiency on the various banks.

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