Impact of Global financial crisis on the efficiency of Indian Banking Sector: An Assessment

Abstract

The present study looks into the stability of the banking system in India in the backdrop of the recession that gripped all corners of the world post-2008. When the developed economies like the USA, the UK, European Union, etc. got caught in the whirlwind of the subprime crisis, it was observed that the Indian economy in general and the Indian banking system in particular did not collapse like a pack of cards. The researchers in this paper aim to understand the resilience of the Indian banking system in terms of efficiency. For the purpose, analysis is made by considering the top sixteen banks from the private and public sectors on a data period from 2004–05 to 2011–12. Data Envelopment Approach is applied to compute the efficiency scores in terms of Technical Efficiency (TE), Pure Technical Efficiency (PTE) and Scale Efficiency (SE) for the banks under study. In order to capture the effect of recession on the Indian banking system, a comparison between the average performance score in the pre- and post-2008 (i.e., post-recession) is carried out. ‘Wilcoxon Matched-pair Signed-rank’ test has been applied to test any significant change in performance of Indian banks on account of global recession. The outcomes of the study clearly show that the global turmoil could not affect the Indian banking industry. This may be possibly due to strong base and good governance of Indian banking system through Reserve Bank of India (RBI) and the stringent measures passed from time to time. The article is an original work carried out by the researchers and the findings are in a similar line as that of Goel and Bajpai (2013).