Impact of Mergers on the Cost Efficiency of Indian Commercial Banks

Abstract

The present paper examines the cost efficiency of Indian commercial banks by using a non-parametric Data Envelopment Analysis Technique. The cost efficiency measures of banks are examined under both separate and common frontiers. This paper also empirically examines the impact of mergers on the cost efficiency of banks that have been merged during post liberalization period. The present study based on unbalanced panel data over the period 1990-91 to 2007-08. In this paper to test the efficiency differences between public and private both parametric and non-parametric tests are employed. The findings of this study suggest that over the entire study period average cost efficiency of public sector banks found to be 73.4 and for private sector banks is 76.3 percent. The findings of this paper suggest that to some extent merger programme has been successful in Indian banking sector. The Government and Policy makers should not promote merger between strong and distressed banks as a way to promote the interest of the depositors of distressed banks, as it will have adverse effect upon the asset quality of the stronger banks.