Determinants of Productivity and Profitability of Indian Banking Sector: A Comparative Study
Keywords:Productivity, Performance, Profitability, Banks, Ownership, India
The purpose of this paper is to discuss the different determinants of productivity and profitability of banks functioning in India. The performance of public and private sector banks in terms of productivity and profitability is being assessed in two different time periods (2003-04 to 2008-09 and 2009-10 to 2013-2014). The linear programming model Data Envelopment Analysis (DEA) based Malmquist index is used to measure total factor productivity of groups and sub-group banks. The decomposition of total factor productivity into pure technical and scale efficiency is done to get a comprehensive insight of the effect of these two on the overall productivity. Further, regression analysis discovers the determinants of different bank groups. The results of the study disclose that private sector banks are more productive than public sector banks over the whole study period. But no significant difference exists in the profitability of two bank groups. The main reason of more productivity of private sector banks is the better utilization of technology than the public sector banks. Further, the productivity of banking sector of India is not found significantly different in the two sub-periods although the banks have performed better in the sub-period II (2009-10 to 2013-14).