Stressed assets, off-balance sheet business activities and performance of Indian banking sector: a DEA double bootstrap approach
Studies in Economics and Finance
ISSN: 1086-7376
Article publication date: 29 July 2021
Issue publication date: 17 June 2022
Abstract
Purpose
This paper examines the technical efficiency (TE) of Indian commercial banks during 1998–2015.
Design/methodology/approach
This study uses mathematical programming-based data envelopment analysis (DEA) methodology to measure technical efficiency of Indian banks. Further, Simar and Wilson (2007) double bootstrap procedure is applied to examine the determinants of efficiency of the Indian banks, by examining the effects of various bank specific and other contextual variables.
Findings
The results indicate substantial upward bias in the conventional efficiency estimates of the Indian commercial banks. Needless to note, such upward bias is consistent with the theoretical postulates. The bootstrapped regression results show that increasing capital adequacy ratio is positively associated with bank efficiency. The popular belief that non-performing assets have a dampening effect on performance of banks is validated. Among others, ownership category is observed to be an important determining factor of bank efficiency. Specifically, state-owned banks (SOBs) are relatively lagging behind the foreign banks. Moreover, larger banks are observed to have a significantly higher level of efficiency, therefore, recent official policy initiatives toward consolidation of SOBs are validated.
Originality/value
As this study uses Simar and Wilson (2007) bootstrap approach, it enables the authors to have an estimate of the extent of bias in the traditional DEA TE scores. It also helps us drawing consistent inferences by rectifying the problem of serial correlation in the conventional second stage regression in this regard.
Keywords
Acknowledgements
The authors are grateful to Dr Vipin Valiyattoor and the participants of the 14th Bulletin of Monetary Economics and Banking (BMEB) conference for their helpful comments. The usual disclaimer applies.
Citation
Zaman, M.S. and Bhandari, A.K. (2022), "Stressed assets, off-balance sheet business activities and performance of Indian banking sector: a DEA double bootstrap approach", Studies in Economics and Finance, Vol. 39 No. 4, pp. 572-592. https://doi.org/10.1108/SEF-09-2020-0369
Publisher
:Emerald Publishing Limited
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