Abstract
Today, it has become common in the literature to
compare India and China, two remarkably growing
economies, but these comparisons often do not take
into account the institutional differences between
these two countries. In this paper, a comparative
analysis of banking institutions in China and India has
been done. This comparison adopted the CAMEL
framework followed by a rigorous comparison using
Data Envelopment Analysis.
China and India have managed an impressive
economic take-off since the opening of their
economies in 1978 and 1991 respectively. Both
countries have attempted to liberalize and modernize
their economies by for example lowering trade
barriers, opening their countries for foreign
investments and deregulating industries. Because of
the rapid economic growth and significant contribution
to international economy by China and India,
comparative analyses of these two countries have
become commonplace nowadays. Starting from
management consultants such as McKinsey (Farrell,
Khanna, Sinha, Woetzel (2004), Farrell, Lund,
Greenberg, Doshi, Rosenfeld, Morin (2006) and Ernst
and Young (2006) to Banks (Deutsch Bank 2005)
and a number of scholars from different countries
(Ahya & Xie 2004, Saez 2004, Tseng & Cowen 2007,
Roland 2007) tend to compare these two countries
as if they are similar in all respects concerning their
institutional and regulatory set up and their
developments. In the case of financial institutions,
such observations are difficult to justify because the
underlying institutional differences between India and
China can be quite wide. For example, Roland (2007)
on the basis of ratio analysis concluded that the Indian
banking sector outperforms the Chinese banks with
the exception of cost-income ratio. He attributed this
performance difference to faster banking sector
reform in India. Similarly, Gamble (2005) tried to
compare China’s Construction Bank and India’s
ICICI although he did suggest that these two banks
cannot be compared. The present paper is
multifaceted in nature. In the first part, the
developments in Indian and Chinese banking sectors
have been compared. This comparison is followed
by the analysis of banking sector in two economies
through CAMEL framework. In the last part of the
paper, a rigorous comparison has been made between
various bank groups as well as individual banks in
India and china using Data Envelopment Analysis.
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