An investigation on the banking industry in India - a post liberalisation analysis

Abstract

The financial system refers to the whole gamut of institutional arrangements that help to mobilise the financial surplus of an economy and transfer it to areas of financial deficit. India has a well-structured financial system. It has an amazing network of banks, other financial and investment institutions, and different financial instruments that all work in a well-developed capital and money market. The Indian financial system is dominated by banks. Over sixty percent of the entire assets of the financial system are held by commercial banks. Commercial banks are the heart of our financial system. They keep the deposits of millions of individuals, governments, and companies. Through their lending and investing activities, they make funds available to borrowers, such as individuals, businesses, and the government. Hence, the present study analysed the growth, profitability, efficiency, and productivity of commercial banks from 1992–93 to 2020–21. In addition to this, factors determining efficiency and productivity were analysed in the present study. For comparing the performance among the different groups of banks, commercial banks are classified into public sector banks, private sector banks, and foreign banks. Mean, compound annual growth rate, ratios, Data Envelopment Analysis, Malmquist productivity index, Kruskal-Wallis H test, ANOVA, panel tobit regression, and fixed and random effect models were employed for the analysis. The study revealed that none of the groups of banks exhibits consistent performance in the performance indicators selected in the study. In the growth analysis, the growth rate of private sector banks is higher than that of other groups of banks. The share of each bank group for each variable on the total of the variables indicates that public sector banks are still holding the major portion of the business; however, the trend of the percentage share of private sector banks has improved over the study period, while the share of public sector banks has decreased. The profitability and efficiency analysis found that the performance of foreign banks was better than that of domestic banks. Productivity analysis indicates that there is productivity progress among all commercial banks and public sector commercial banks, whereas private sector banks and foreign banks have experienced a decline in productivity. The study concluded that each group of commercial banks is performing better as per one performance indicator or another. None of the bank groups is performing better according to all the selected performance indicators.