An Analysis and Measurement of the Productivity of Indian Banking Sector

Abstract

This paper attempts to provide empirical evidence regarding the growth in productivity of the Indian banking industry. The basic aim of the paper is to find out whether there has been any increase in the productivity of the Indian banking industry as a whole, over the period 2002 to 2010. Furthermore, a sample comprises of twenty banks has been compared with entire Indian banking industry for productivity results and analysis. Our findings revealed that the performance of the Indian banking industry remained moderate for the period 2002 till 2010 despite of the financial crisis 2008. Indian financial system remained sheltered from external shocks during the period merely because of having flexible exchange rate regime, the foreign reserves were high, the capital account is not yet fully convertible, and banks and their customers have limited foreign exchange exposure. Therefore, in present scenario, we recommend that the policy makers should carry on with their current economic policy as it has been successful in sheltering them from external shocks. Furthermore the policy makers have to emphasize on increasing the deposit base of the banks by increasing the interest rates on deposits. This paper proceeds as follows. The first section is about Introduction, next section reviews the empirical literature, section 3 is about data and methodology. In section 4 we present our analysis and findings and finally section 4 concludes.

Keywords: Indian banking industry, Growth, Productivity, Financial turmoil, Economic policy