Consolidation as a Determinant of Profitability and Efficiency of Indian Commercial Banks
Keywords:
Consolidation, Profitability and Efficiency, Simultaneous Equation Method, Indian Commercial Banks, DEAAbstract
The study examines the relationship among consolidation, profitability and efficiency of commercial banks in India using input-oriented efficiency scores of banks which is measured by data envelopment analysis (DEA) in 2013. We used simultaneous equation method to measure the relationship among these variables. The main finding of the study reveals that profit of banks was determined by its efficiency but efficiency of banks was found insignificant with profitability and also found that efficiency was not determined by other control variables as well. As far as pure technical efficiency is concerned, there is a positive relationship between banks profitability and efficiency that is found from the analysis. Another finding indicates that consolidation impacts efficiency but that is observed only on the term of pure technical efficiency. Here, we found that efficiency is improved because of increased assets and proper management of inputs and outputs by consolidation. Further, it is also observed that except these variables others also contributed more in determining banks efficiency. As far as Scale Efficiency and Overall Technical Efficiency are concerned, increased assets size by consolidation and profit from consolidation are found to be insignificant and it reveals that these efficiency measures are not determined by profit and increased assets by consolidation.
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