Measurement and determinants of total factor productivity: evidence from Indian banking industry

Abstract

PurposeThe purpose of this study is to measure the level of total factor productivity of the Indian banking sector and to identify both the bank-specific and macroeconomic determinants of the total factor productivity after the global subprime mortgage crisis.Design/methodology/approachThe research sample consists of 61 commercial banks including 21 public sector banks, 18 private sector banks and 22 foreign banks. The annual data is collected from the website of Reserve Bank of India from 2008 to 2019. The authors employed the non-parametric DEA approach to estimate Malmquist total factor productivity index for each bank as well as across different ownership groups. The panel data estimation technique was used to identify the determinants of total factor productivity.FindingsThe results suggested that an increase in the technological shift raised the bank's productivity above the optimal frontier. Among the bank-specific determinants, the bank size and bank diversifications are significantly declining productivity, whereas credit-deposit ratio and return on asset significantly increasing productivity. Among the macro-specific determinants, inflation, growth rate and fiscal deficit ratio negatively affect productivity, whereas capital formation to the GVA ratio boosts the level of productivity.Research limitations/implicationsThe authors have used intermediate method to select the inputs and outputs as per the suitability to the context. However, the disaggregate level such as state and district level analysis can be done using production and value-added approaches to explore the regional variations of the banking performance. Furthermore, the parametric methods such as stochastic frontier analysis can be used to examine banking performance, which the authors left for the future research.Practical implicationsThis study suggested that banks should increase the economies of scale of their total assets and focus on the interest-earning activity. The banks need to proactively operate the business policy by following the changing path of inflation. The banks need to reduce their rate of fiscal-deficit to the GVA with the purpose to boost their level of productivity.Originality/valueThe study provides an important implication for bankers and policymakers in terms of heightening the banking performance during the period of dynamic economic events.

Augmenting bank service quality dimensions: moderation of perceived trust and perceived risk

“…The Indian banking sector was predominated by the public sector banks, but postliberalization, several private sector banks and foreign banks have intruded the Indian banking industry (Bhuyan et al , 2021; Kaura et al , 2015; Manohar et al , 2019; Sharma and Anand, 2020; Sharma and Sharma, 2019). As a result, competition has intensified and the only way to outperform competitors is by providing top-notch services to customers (Kaura, 2013; Manohar et al , 2019; Roy et al , 2016).…”

“…This sector is marked by its top-notch services and high customer involvement (Chauhan et al , 2019; Kaura, 2013). Globalization had a considerable influence on the Indian retail banking sector and paved way for the private sector and foreign banks in India (Bhuyan et al , 2021; Goswami and Gulati, 2021; Kaura et al , 2015; Kundu and Banerjee, 2021; Manohar et al , 2019; Roy et al , 2016; Sharma and Anand, 2020). It further triggered intense competitiveness in the banking sector; thus, customer satisfaction has become the epicenter of all activities (Bhatt, 2020; Chauhan et al , 2019; Manohar et al , 2019).…”

Measuring the Performance of Working Banks in Egypt

“…Among other explanatory variables, operational cost management, banking sector development, GDP growth rate, and infrastructure development showed significant relationships with various efficiencies and TFP growth. (Bhuyan and Patra, 2022) measured the level of TPF of the Indian banking sector to identify both the bank-specific and macroeconomic determinants of the TFP after the global mortgage crisis. The sample involved 61 commercial banks involving public, private and foreign banks with annual data from 2008 to 2019.…”