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Article
Publication date: 10 April 2017

Rachita Gulati and Sunil Kumar

The purpose of this paper is to present a holistic approach for measuring overall bank efficiency and its decomposition in intermediation and operating efficiencies.

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Abstract

Purpose

The purpose of this paper is to present a holistic approach for measuring overall bank efficiency and its decomposition in intermediation and operating efficiencies.

Design/methodology/approach

Recently developed two-stage network data envelopment analysis model by Liang et al. (2008) has been used for obtaining intermediation and operational efficiencies along with overall bank efficiency. The bootstrapped truncated regression algorithm as proposed by Simar and Wilson (2007) has been employed to explore the influential determinants of intermediation and operating efficiencies.

Findings

The empirical results reveal that the operating inefficiency is the dominant source of overall bank inefficiency in Indian banking sector. Another interesting finding is that public sector banks are more efficient than private banks in the intermediation stage of production process, while private banks are more efficient in the operating stage of production process. Finally, the results of bootstrapped truncated regression show that variations in intermediation efficiency are explained by bank size, liquidity position, directed lending and intermediation cost, while inter-bank differences in operating efficiency are influenced by profitability and income diversification.

Practical implications

The most significant practical implication that has been derived from the research findings is that at the industry level, overall efficiency enhancement needs improvement both in terms of resource-utilization and income-generating abilities of the banks. However, the relatively easy way to achieve higher bank efficiency is to improve the efficiency of banks in generating incomes from interest and fee-based sources.

Originality/value

This paper is the first to provide a comprehensive assessment of performance of Indian banks by examining the efficiency of individual banks considering both the intermediation and operating approaches simultaneously.

Details

International Journal of Productivity and Performance Management, vol. 66 no. 4
Type: Research Article
ISSN: 1741-0401

Keywords

Article
Publication date: 20 June 2023

Madhur Bhatia and Rachita Gulati

The purpose of the paper is to explore the long-run impact of board governance and bank performance on executive remuneration. More specifically, the study addresses two…

Abstract

Purpose

The purpose of the paper is to explore the long-run impact of board governance and bank performance on executive remuneration. More specifically, the study addresses two objectives. First, the authors investigate the long-run relationship between pay and performance hold for the Indian banking industry. Second, the authors explore the moderating role of the board in explaining the relationship between executive pay and performance.

Design/methodology/approach

The study uses multivariate panel co-integration approaches, i.e. fully modified and dynamic ordinary least square, to explain the co-integrating relationship between executive pay, governance and performance of Indian banks. The analysis is conducted for the period from 2005 to 2018.

Findings

The results of co-integration tests reveal a long-run relationship between executive pay, board governance and bank performance. The long-run estimates produce evidence in favour of the dynamic agency theory, suggesting that the implications of asymmetric information can be mitigated by associating the current executive pay with the bank performance in the previous periods. The finding of this study reveals that improvements in the board quality serve as a monitoring tool to constrain excessive pay and moderate the executives’ pay. Furthermore, the interaction of performance and board governance negatively impacts pay, supporting a substitution approach. It implies that setting optimal pay packages for executives necessitates enhanced and efficient board governance practices.

Practical implications

The study recommends significant policy implications for regulators and the board of directors that executive pay significantly responds to the bank’s performance and good board governance practices in the long run.

Originality/value

This paper provides novel evidence of long-run pay-performance-governance relation using a panel co-integration approach.

Details

Corporate Governance: The International Journal of Business in Society, vol. 24 no. 1
Type: Research Article
ISSN: 1472-0701

Keywords

Article
Publication date: 15 January 2021

Anju Goswami and Rachita Gulati

This paper aims to investigate the productivity behavior of Indian banks in the presence of non-performing assets (NPAs) over the period 1999 to 2017. The study examines whether…

Abstract

Purpose

This paper aims to investigate the productivity behavior of Indian banks in the presence of non-performing assets (NPAs) over the period 1999 to 2017. The study examines whether Indian banks withstand the shocks of the global financial crisis (GFC) of 2007–2009 and sustain their total factor productivity (TFP) levels in the post-crisis economic turbulent period or not.

Design/methodology/approach

The robust estimates of TFP and its components: efficiency change and technical change are obtained using the state-of-the-art and innovative sequential Malmquist-Luenberger productivity index (SMLPI) approach. The key advantages of this approach are that it explicitly allows the joint production of undesirable output (NPAs in our case) along with desirable inputs and outputs in the production process and precludes the possibility of spurious technical regress.

Findings

The empirical results of the study reveal that the Indian banking system has experienced a (−1) percent TFP regress, contributed solely by efficiency loss during the period under investigation. The GFC has slowed down the growth trajectory of TFP growth in the Indian banking industry. Among ownership groups, the effect of the GFC was pronounced on the public sector banks.

Practical implications

The practical implication drawn from the study is that the Indian banks have not been able to successfully transmit the use of installed technology in a way to generate early warning signals and mitigate the risk of defaults so as to maximize their productivity gains in the banking industry.

Originality/value

This study is perhaps the first one to understand the productivity dynamics of the Indian banks in response to both endogenous (i.e. NPA crisis) and exogenous (i.e. global financial and economic stress) crises. Moreover, the authors obtain the robust estimates of TFP growth of Indian banks by explicitly accounting for NPAs as an undesirable output and equity as a quasi-fixed input in the bank production process.

Details

International Journal of Productivity and Performance Management, vol. 71 no. 4
Type: Research Article
ISSN: 1741-0401

Keywords

Article
Publication date: 15 June 2020

Rachita Gulati

This study aims to demystify how the critical regulations affecting the bank competition have instituted, amended and fine-tuned over the years in India and its peers in Brazil…

Abstract

Purpose

This study aims to demystify how the critical regulations affecting the bank competition have instituted, amended and fine-tuned over the years in India and its peers in Brazil, Russia, India, China and South Africa (BRICS). The gaps in the regulatory practices influencing bank contestability and competition in BRICS nations are identified. Also, the regulatory convergence is tested by comparing the policies embraced in India vis-à-vis its peer nations.

Design/methodology/approach

A methodological framework by Barth, Caprio and Levine (2013) is adopted to construct various regulatory indices. The empirical analysis is based on information available in five rounds of the bank regulation and supervision survey conducted in 2000, 2003, 2007, 2011 and 2017 by the World Bank.

Findings

The empirical findings elucidate that although bank entry regulations have been liberalized over time, the bank contestability seems to be low in the BRICS countries, especially in India. This might be due to the substantial government ownership and the presence of notional powers that are conferred to bank supervisors. On comparing the bank regulations in India vis-à-vis its peers, the author find a strong convergence in licensing requirements for entry into the banking business, foreign bank entry mode, restrictions on conglomerate formation and adoption of prompt corrective action framework.

Practical implications

The study suggests that future policy initiatives in India need to focus on redesigning the banking structure by reducing the share of state ownership, permitting joint ventures and liberally allowing the entry of new domestic and foreign banks in the industry. In the years to come, regulators in India will continuously face the challenge of fostering bank contestability without jeopardizing bank efficiency and overall stability.

Originality/value

This study is perhaps first of its kind, which analyzes the inter-temporal changes in regulatory indicators to examine the variations in the competitive environment of the banking markets of BRICS economies in general and India in particular.

Details

Journal of Financial Regulation and Compliance, vol. 29 no. 1
Type: Research Article
ISSN: 1358-1988

Keywords

Article
Publication date: 10 June 2021

Asif Khan and Rachita Gulati

This paper aims to examine the total factor productivity (TFP) change and its components: efficiency change and technical change in microfinance institutions (MFIs) in India…

Abstract

Purpose

This paper aims to examine the total factor productivity (TFP) change and its components: efficiency change and technical change in microfinance institutions (MFIs) in India operating from 2005 to 2018. The study also scrutinizes the variations in productivity levels across the distinct organizational form and size groups of MFIs. In addition to this, the authors identify the contextual factors that determine TFP growth, catching-up and technology innovation in MFIs.

Design/methodology/approach

The study employs a smooth homogeneous bootstrap estimation procedure of Simar and Wilson (1999) for obtaining reliable estimates of Malmquist indices –productivity and its components – in a data envelopment analysis (DEA) framework for individual MFIs. In order to identify the determinants of productivity change and its components, the study follows Simar and Wilson's (2007) guidelines and applies a bootstrap truncated regression model. The double bootstrap procedure performs well, both in terms of allowing correct estimation of bias and deriving statistically consistent productivity estimates in the first and root mean square errors in the second stage of the analysis.

Findings

The empirical results reveal that the MFIs have shown average productivity growth of 6.70% during the entire study period. The observed productivity gains are primarily contributed by a larger efficiency increase at the rate of 4.80%, while technical progress occurs at 2.3%. Nonbanking financial companies (NBFC)-MFIs outperformed non-NBFC-MFIs. Small MFIs show the highest TFP growth in terms of size groups, followed by the large MFIs and medium MFIs. The bootstrap truncated regression results suggest that the credit portfolio, size and age of MFIs matter in achieving higher productivity levels.

Practical implications

The practical implication drawn from the study is that the Indian MFI industry might adopt the latest technology and innovations in the products, risk assessment and credit delivery to improve their productivity levels. The industry must focus on enhancing the managerial skill of its employees to achieve a high productivity level.

Originality/value

This study is perhaps the initial attempt to explain the productivity behavior of MFIs in India by deploying a statistically robust double bootstrap procedure in the DEA-based Malmquist Productivity Index (MPI) framework. The authors estimate the bias-adjusted productivity index and its decompositions, which represent more reliable and statistically consistent estimates. For contextual factors responsible for driving productivity change, the study deploys a bootstrap truncated regression approach.

Details

Benchmarking: An International Journal, vol. 29 no. 3
Type: Research Article
ISSN: 1463-5771

Keywords

Article
Publication date: 29 December 2022

Rachita Gulati

The study evaluates the accident-adjusted dynamic efficiency of public bus operators providing bus transportation services in eight major metropolitan cities of India.

Abstract

Purpose

The study evaluates the accident-adjusted dynamic efficiency of public bus operators providing bus transportation services in eight major metropolitan cities of India.

Design/methodology/approach

The slack-based measure (SBM)–undesirable window analysis approach is used to gauge the dynamic efficiency levels and identify the sources of inefficiency in bus transportation services. This innovative approach integrates the SBM model developed by Tone (2001, 2004) and the window analysis approach of Charnes et al. (1985). The main advantage of this approach is that one can explicitly incorporate the number of accidents in the production technology specification as an undesirable (bad) output and potently handle the issue of the “curse of dimensionality” in a small sample like ours.

Findings

The key empirical findings suggest wide variations in average efficiency levels across sample bus operators in metropolitan cities. The Chennai Transport Corporation is observed as the most efficient and consistent bus operator due to its most stable efficiency performance. The results additionally unveil that the role of managerial inefficiency was diminutive, and the scale-related issues were the real cause of sub-optimal or supra-optimal behaviour of sample bus operators in the resource-utilisation process.

Practical implications

There is an urgent requirement for effective policy intercessions to mitigate the sizeable observed inefficiency in the production process and resolve scale-related issues of public bus operators offering transit services in major metropolitan cities of India.

Originality/value

This paper is maybe the first to assess the dynamic efficiency of public bus transit systems in India's major metropolitan cities after treating accidents.

Details

Benchmarking: An International Journal, vol. 30 no. 10
Type: Research Article
ISSN: 1463-5771

Keywords

Article
Publication date: 6 July 2015

Rachita Gulati

The purpose of this paper is to examine the trends of cost efficiency (CE) of Indian banks in response to financial deregulation programme launched in early 1990s. More…

Abstract

Purpose

The purpose of this paper is to examine the trends of cost efficiency (CE) of Indian banks in response to financial deregulation programme launched in early 1990s. More specifically, the findings of this paper offer empirical testing of the basic underlined hypothesis that the CE of banks will rise in the more liberal and competitive environment.

Design/methodology/approach

The study employs input-oriented data envelopment analysis (DEA) models that incorporate the quasi-fixed inputs to compute the cost, technical, and allocative efficiency scores for individual banks. The unbalanced panel data spanning from the financial year 1992-1993 to 2007-2008 are used for obtaining efficiency measures. In addition, the panel data Tobit model has been applied to investigate the bank-specific factors explaining variations in the CE.

Findings

The empirical findings pertaining to the trends of efficiency measures suggest that: first, deregulation programme has had a positive impact on the CE of Indian banks, and the observed increase in CE is entirely due to improvements in technical efficiency (TE); second, the ranking of ownership groups provides that public sector banks are more cost efficient along with the foreign than private banks; and third, there is a strong presence of global advantage hypothesis in the Indian banking industry. The results of post-DEA analysis reveal that size and exposure to off-balance sheet activities are the key determinants of CE. The results also support the existence of bad luck or bad management hypothesis in Indian banking industry.

Practical implications

The practical implication of the research findings is that the financial deregulation programme seems to be successful in achieving the CE gains in the Indian banking industry. This explicitly signals that the cautious approach of banking reforms adopted by Indian policy makers has started bearing fruit in terms of the creation of an efficient banking system, which is immune to any sort of financial crisis, and resilient to both internal and external shocks.

Originality/value

The present study offers new evidence on the time-series properties of cost, allocative, and TEs of Indian banks. The DEA models used in this study explicitly incorporate the equity as a quasi-fixed input, which accounts for “risk” in the bank efficiency measurement.

Details

Benchmarking: An International Journal, vol. 22 no. 5
Type: Research Article
ISSN: 1463-5771

Keywords

Article
Publication date: 19 September 2008

Sunil Kumar and Rachita Gulati

The purpose of this paper is to evaluate the extent of technical efficiency in 27 public sector banks operating in India and to provide strict ranking to these banks.

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Abstract

Purpose

The purpose of this paper is to evaluate the extent of technical efficiency in 27 public sector banks operating in India and to provide strict ranking to these banks.

Design/methodology/approach

Two popular data envelopment analysis (DEA) models, namely, CCR model and Andersen and Petersen's super‐efficiency model, were utilized. The cross‐section data for the financial year 2004/2005 were used for obtaining technical efficiency scores.

Findings

The results show that only seven of the 27 banks are found to be efficient and thus, defined the efficient frontier; and technical efficiency scores range from 0.632 to 1, with an average of 0.885. Thus, Indian public sector banks, on an average, waste the inputs to the tune of 11.5 percent. Andhra Bank has been observed to be the most efficient bank followed closely by Corporation Bank. Further, the banks affiliated with SBI group turned out to be more efficient than the nationalized banks. The regression results incisively indicate that the exposure to off‐balance sheet activities, staff productivity, market share and size are the major determinants of the technical efficiency.

Practical implications

The practical implication of the research findings is that apart from the proportional reduction of all inputs equivalent to the amount of technical inefficiency, most of the inefficient public sector banks need to reduce the use of the physical capital and augment non‐interest income to project themselves on the efficient frontier.

Originality/value

This paper is the first to provide a strict ranking of Indian public sector banks on the basis of super‐efficiency scores.

Details

International Journal of Productivity and Performance Management, vol. 57 no. 7
Type: Research Article
ISSN: 1741-0401

Keywords

Article
Publication date: 1 January 2010

Sunil Kumar and Rachita Gulati

The purpose of this paper is to appraise the efficiency, effectiveness, and performance of 27 public sector banks (PSBs) operating in India by using a two‐stage performance…

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Abstract

Purpose

The purpose of this paper is to appraise the efficiency, effectiveness, and performance of 27 public sector banks (PSBs) operating in India by using a two‐stage performance evaluation model.

Design/methodology/approach

Using the cross‐sectional data for the financial year 2006/2007, the technique of data envelopment analysis has been used for computing the efficiency and effectiveness scores for individual PSBs. The overall performance scores have been derived by taking the product of efficiency and effectiveness scores.

Findings

The empirical results reveal that high efficiency does not stand for high effectiveness in the Indian PSB industry. A positive and strong correlation between effectiveness and performance measures has been noted. Further, on the efficiency front, State Bank of Travancore appears as an ideal benchmark, while State Bank of Bikaner and Jaipur, and State Bank of Mysore emerge as ideal benchmarks on the effectiveness front.

Practical implications

The practical implication of the research findings is that in their drive to improve overall performance, Indian PSBs should pay more attention to their income‐generating capabilities (i.e. effectiveness) relative to their ability to produce traditional outputs such as advances and investments (i.e. efficiency).

Originality/value

This paper is perhaps the first to evaluate the performance of Indian banks by considering simultaneously the aspects of efficiency and effectiveness.

Details

International Journal of Productivity and Performance Management, vol. 59 no. 1
Type: Research Article
ISSN: 1741-0401

Keywords

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Article
Publication date: 1 January 2010

John Heap

434

Abstract

Details

International Journal of Productivity and Performance Management, vol. 59 no. 1
Type: Research Article
ISSN: 1741-0401

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