India 's An Efficient Financial Sector

2074 Words9 Pages
An efficient financial sector will have its impact on economic well-being of any country by efficiently managing its financial resources. Meanwhile an efficient banking sector, usually a dominant entity in the financial sector, would uplift the well-being of the society especially through improved profitability, greater amounts of intermediated funds, better prices and increased financial system 's strength and stability. Such banking system which efficiently channels financial resources to productive use, is a powerful mechanism for long run economic growth [Levine (1997)]. In Sri Lanka, as the case in many emerging market economies, banking sector dominates the financial sector. Sri Lankan banking sector collectively owns around 58 per…show more content…
Motivated by these observations, this study attempts examine the efficiency, precisely technical efficiency, of the current banking sector in Sri Lanka. Technical efficiency (TE) can be defined as the effectiveness of producing output using a given input . This study examines the relationship between technical efficiency levels of LCBs and LSBs with the size of the bank and other important characteristics such as bank ownership, type of the bank etc. Accordingly, the study attempts to shed light on the efficiency gain (loss) that would occur in case of a consolidation process, by analysing the current situation. The methodology that we employ in this study is DEA with two-stage analysis. Novelty of the present study is, this the first time, to the best of our knowledge, a Sri Lankan banking study employs the methodology introduced by Simar and Wilson (2007). Simar and Wilson introduced the truncated regression methodology in the second-stage of the analysis, which provides a valid inference in the second-stage investigating the impact of other factors on technical efficiency scores, and is useful to overcome the complicated serial correlation problem found in efficiency scores. The organisation of the rest of the paper is as follows. Section 2 briefly discusses the present banking sector in Sri Lanka. Section 3 reviews relevant literature. In this section, more emphasis is given to discuss the banking efficiency
Open Document