Indian Banking : Growth And Trends Essay

Numerous econometric studies of bank scale and scope economies, efficiency and mergers in U.S. banking have been conducted (Berger and Humphrey, 1994). Berger and Humphrey (1994) stated that economies of scale, economies of scope and x-efficiency are generally able to increase the efficiency of a company, whereby x-efficiency is much more important than scale and scope economies. The academic studies have come to the result that economies of scales indeed allow average costs to fall with increases in bank

The Banking Industry plays an important role in the economic development of the country and is the most dominant segment of the financial sector. Banks encourage economic growth by allocating savings to investments that have potential to yield higher returns. They perform their basic role of accepting deposits and lending funds from these deposits. Banks securely save the money of depositors, provide interest to them, and lend the funds raised from depositors to consumers. They are in a wide range of sizes, from large Global Banks to Regional and Community Banks. We can study the structure of an organized banking industry by taking an example of Indian banking industry:

Banks are the most significant players in the Indian financial market. They are the biggest purveyors of credit, and they also attract most of the savings from the population. Dominated by public sector, the banking industry has so far acted as an efficient partner in the growth and the development of the country. Driven by the socialist ideologies and the welfare state concept, public sector banks have long been the supporters of agriculture and other priority sectors. They act as crucial channels of the government in its efforts to ensure equitable economic development.

Table 6: Profile of financial ratios of The ICICI Bank for three financial years post merger (in percentages)

There is a continuous increase in the ratio. This means employee efficiency is considerably increasing over the years. The business per employee was Rs.75,44,927 in the year 2009-10. In the year 2010-11 it was decreased to Rs. 71,23,824. But in the later years it started to increase and in the previous year it was Rs.2,00,14,749. The reason for increasing performance is with less number of employees the bank can generate more income.

A wide range of theoretical literature explores the relationships between banks and economic growth. In an ideal world researchers would construct cross-country variables that would describe banks profitability, corporate governance in place, resource mobilization and allocation and risk management. Unfortunately until now no standardized measures for a broad spectrum of countries have been developed. That is the main reason why most of the researchers today uses variables that describe the over-all size of the banking sector by which they proxy for the „financial depth“ (Goldsmith, 1969; Mckinnon 1973).

India’s banking sector has grown very fast over these years. India has a large web of banking it has 26 public sector banks, private sector consists of 20, and there are 43 foreign banks which is a good sign for banking sector. Also it consists of 61 regional banks. There has been a noticeable expansion in dealings through ATMs, and also with internet and mobile banking banks has shown tremendous growth.

In added some areas of concern in the form of increasing non-performing assets, declining profitability and efficiency, which were threatening the viability of commercial banks. In the light of this facets of banking, the Ghosh committee in 1985, Vaghul group in 1987 and Narasimham Committee in 1991 were appointed to improve the productivity, profitability and efficiency of the financial sector in general and baking sector in particular.

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.

Banking sector is very sensitive and competitive by its nature. Although I have enjoyed full co-operation from employees of Shimrail Branch of Prime Bank Ltd and they also gave much time to prepare this report properly in the way of my study. There are some limitations in the study. Limitations are as follows:

When asked about the people about which sector they would prefer banking with, the response was a mixed one. As most

Money related Industry is the foundation of a present day economy. Soundness of Financial industry is a standout amongst the most essential pre-conditions for managed monetary advance of any nation. The universe of Finance has accepted another measurement at the beginning of the 21st century with the coming of innovation, in this manner loaning the business a stamp of comprehensiveness. By and large, Financing might be delegated retail and corporate Financing. Retail Financing, which is intended to meet the necessity of individual client and energize their investment funds, incorporates installment of service bills, customer advances, Visas, financial records equalizations, ATMs, exchanging reserves amongst records and so forth. Corporate financing, then again, obliges the requirements of corporate clients like bills marking down, opening letters of credit and overseeing money.

The statistical material for the study and analysis of the property of corporate share by financial institutions inside a framework of national accounts is much lesser and less solid than that accessible data collected during the post-war time period.

As the economy grows and becomes more sophisticated, the banking sector has to develop parallely in a manner that it supports and stimulates such growth. With increasing global integration, the Indian banking system and financial system has as a whole had to be strengthened so as to be able to compete. India has had around two decade of financial sector reforms during which there has been substantial transformation and liberalization of the whole financial system.. Until the beginning of the 1990s, the state of the financial sector in India could be described as a

The idealism of superior to expected profit for the primary quarter of the money related year 2017-2018. Portable pinnacle organization Bharti Infratel shares top the rundown in adding to the Nifty hitting the record breaking point of reference of 10,000. Be that as it may, yesterday the organization detailed 12% decrease in merged net benefit to Rs 664 crore for the June quarter of the current monetary. HDFC Bank detailed 20% expansion in net benefit for the quarter finished June 30 yesterday remained the second pointwise benefactor in driving the file to record highs.