The effect of ownership market concentration corporate governance and risk on the efficiency of select commercial banks in India

Abstract

Maximizing the efficiency of banks has now become an attention seeking subject for policy makers. The higher the efficiency of banking system of a country, more will be the efficient utilisation of savings and payment system of a country. Efficiency is affected by number of factors. This study focuses on the banking sector in India and examining various interlinked parameters which affect the efficiency viz. ownership, market concentration, corporate governance and risk. The efficiency has been measured through non-oriented Slack Based Model (SBM) along with cost efficiency. The data has been compiled for a period of nine years i.e. from 2007-08 to 2015-16 for 71 Indian commercial banks including public, private and foreign banks. To determine the impact, Tobit regression and Generalized Method of Moments (GMM) techniques have been applied. The analysis of type of ownership has shown that foreign sector banks are more efficient than the domestic banks. The results have further shown that competition is important for increase in the efficiency whereas concentration has negative relationship with the efficiency. The results of impact of corporate governance on the efficiency have shown that separate leadership structure is more beneficial for promoting efficiency in the banks. Lastly, risk variables including credit risk, capital risk and insolvency risk have shown significant impact on the efficiency. The implication of the study will be of great help to the policymakers as they can keep all these factors into consideration while formulating the policies for the efficient functioning of the banking system.