Relevance and scope of the topic:
India provides a unique case study whereby banking industry is characterized by a mixed ownership structure and the deregulation of the industry in the nineties had paved the way for a level playing field between the various ownership groups. Historically, the industry was dominated by the public sector banks while the activities of the private sector (both domestic and foreign) were severely controlled by India's Central Bank, the Reserve Bank of India. However, failing profitability and inefficiency in the banking system precipitated the first set of banking sector reforms in 1992 that facilitated entry deregulation, branch de-licensing, deregulation of interest rates, and operational freedom for public sector banks.
This report basically assesses the relative performance of the state-owned banks, the old & new private banks and the foreign banks in India by analysing a large period of data (viz. 1990-2012). The period allows us to study the impact of various national and international events on the Indian banking performance.
Essentially, we would be doing the comparison in two parts. The first part further consists of two steps. The first step deals with estimation of efficiency using stochastic frontier analysis. In the next step, measures of productivity are computed based on the stochastic frontier estimates. In the second part, we would try to assess the performance and credit risk of all the banking groups of India by using the simple Error Correction Model (ECM).
Objective
• To estimate efficiency of Indian banks and then estimate a measure of productivity that includes an efficiency term • To compare the State-owned, Private and Foreign banks in India on the basis of efficiency and productivity • To see the impact of any significant events on Indian banking system by