Ownership and Performance of the Indian Banking Industry

Abstract

This study contributes to the ownership–performance literature by analysing the issue for the Indian banking sector during the post reform period (1992–2007). Results indicate that both foreign and domestic private banks are superior to their public counterparts with respect to four performance indicators namely, Return on Asset, Operating Profit Ratio, Operating Cost Ratio and Staff Expense Ratio. The one indicator in which the private banks are less efficient than their counterpart is Net Interest Margin. Furthermore, the foreign banks seem to be superior among the private banks, while the State bank group shows better performance among the public banks. The results also highlight a convergence in the performances across various ownership groups over the reform period. The competitiveness due to reform measures seems to help the poor performing banks in reducing the performance gap. Since publicly owned banks still perform poorly, privatisation seems to be an effective policy in improving the performance of Indian banks.