Are foreign banks always the best? Comparison of state-owned, private and foreign banks in India

Abstract

Researchers have used different approaches and techniques to measure bank performance but most of these studies have been restricted to developed economies. Among the few papers that exist for developing economies, either efficiency or productivity of banks have been estimated based on which inferences about the banking industry have been made. In this paper we estimate efficiency of Indian banks and then estimate a measure of productivity that includes an efficiency term. Following this comprehensive measure, we find that banks have improved their performance during the period 1986 to 2000 in terms of both efficiency and productivity. Surprisingly, foreign banks have been the worst performers throughout the period as compared with state owned and private domestic banks.