Abstract
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).
Highlights
The banking sector is considered as one of the leading contributors to the growth of an economy
The close observation to the results shows that profitability is positive to productivity but not significantly which show that more profitable banks may or may not be productive too, which leads to the nonacceptance of hypothesis H04 (b) which states more profitable banks are more productive
Data Envelopment Analysis based Malmquist Productivity Index is applied to measure the productivity over the study period
Summary
The banking sector is considered as one of the leading contributors to the growth of an economy. It is termed as the primary engine of growth an economy. This sector has experienced a complete transformation over the years across the globe. Due to its major contribution towards the overall growth of a country it becomes important to gauge the performance of this sector in terms of productivity and profitability on continuous basis. According to Chatzoglou et al, (2010), in the frame of the technological and financial progress, it is important for banks to develop and implement a high productivity policy, which, leads to high profitability
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