Regulatory Changes and Productivity of the Banking Sector in the Indian Sub-continent

Efficiency plays an important role in the operation of firms. If firms are pursing a policy of shareholder wealth maximisation, this implies that maximum efficiency is extracted from a firm’s resources during the production process, or that the minimum quantity of inputs is used to achieve a desired level of output. Studies on efficiency in firms have been relatively forthcoming and include work on technical efficiency in the Japanese manufacturing sector [Hitomi (2004)], the UKCS Petroleum Industry [Kashani (2005)] and labour efficiency of the Indian farming industry [Kumbhakar (1996)]. However, there is little in the way of research conducted on efficiency within the banking sector, and even less on the banking sectors of developing economies [Berger and Humphry (1997)]. This is unfortunate, as banks and financial institutions are the most important organisations in overall financial intermediation and economic acceleration of a country. Banks play a significant role in converting deposits into productive investment [Podder and Mamun (2004)]. For this reason, the study of banking in developing economies entails a greater significance.