Impact of Competition on the Operational Efficiency of Indian Banks
Published: 2018
Author(s) Name: Vinod R. R., Mohammed Khalid Azam |
Author(s) Affiliation: Assistant Professor, Bhavan’s Royal Institute of Management, Tripunuthira, Cochin, Kerala, India.
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Abstract
During the last three decades, the issues &
challenges faced by most banking industries
worldwide have been widely debated both in academic
and policy level circles. Some of the topics more
profoundly examined in the banking literature
relate to the study of the effect of market power on
managerial efficiency. Although there is no dearth
of literature, majority of them have been confined
to developed economies and the results also are
inconclusive. Accordingly, this study tries to address
this gap in the literature. In this study, inverse of
concentration measure (HHI) is taken as a proxy for
competition. For operational efficiency, cost to income
ratio for banks is used. Results report that despite
addition of more players, operational efficiency of
Indian scheduled commercial banks has come down.
One solution to enhance their operational efficiency is
to shift their focus from traditional banking services to
modern banking services. Further, private sector banks
seem to be more operationally efficient that government
owned banks. On analysing the flow of direction,
there exists a causality running from competition to
efficiency, thus rejecting the existence of quiet life
hypothesis in Indian banking industry.
Keywords: Quiet Life Hypothesis, Competition, Operational Efficiency, Granger Causality Test
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