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Liberalisation, Ownership and Efficiency in Indian Banking

This paper empirically estimates and analyses various efficiency scores of Indian banks during 1997-2003 using data envelopment analysis (DEA). In spite of gradual liberalisation aimed at strengthening the operational efficiency of the financial system in the 1990s, it is observed that Indian banks are still not much differentiated in terms of input- or output-oriented technical efficiency and cost efficiency. However, they differ sharply in respect of revenue and profit efficiencies. Bank size, ownership, and being listed on the stock exchange are some of the factors that have a positive impact on average profit efficiency, and to some extent, revenue efficiency scores. Finally, the median efficiency scores of Indian banks, in general, and of bigger banks, in particular, have improved during the post-reform period.

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