“An Analysis on Design of Financial Proficiency In Indian Banking Industry In the Post-Deregulation Knowledge” |
This paper analyses the trends of cost efficiency and itscomponents across Indian public sector banks (PSBs) during thepost-deregulation period spanning from 1992/93 to 2007/08. The study alsoexamines the issue of convergence in cost, technical and allocativeefficiencies levels of Indian PSBs. The empirical results indicate thatderegulation has had a positive impact on the cost efficiency levels of Indianpublic sector banking industry over the period of study. Further, technicalefficiency of Indian public sector banking industry followed an upward trend,while allocative efficiency followed a path of deceleration. We note that, inIndian public sector banking industry, the cost inefficiency is mainly drivenby technical inefficiency rather than allocative inefficiency. The convergenceanalysis reveals that the inefficient PSBs are not only catching-up but alsomoving ahead than the efficient ones, i.e., the banks with low level of cost efficiencyat the beginning of the period are growing more rapidly than the highly costefficient banks. In sum, the study confirms a strong presence of s - and b -convergence in cost efficiency levels of Indian public sector banking industry. One of the major objectives of Indian banking sectorreforms was to encourage operational self-sufficiency, flexibility andcompetition in the system and to increase the banking standards in India to theinternational best practices. The second phase of reforms began in 1997 withaim to reorganization measures, human capital development, technologicalup-gradation, structural development which helped them for achieving universalbenchmarks in terms of prudential norms and pre-eminent practices.