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This paper provides a comparative analysis of evolution of technical efficiency in commercial banking industry in India and Pakistan during 1988-1998, a period characterised by far-reaching changes in financial sector brought about by financial liberalisation. Data Envelopment Analysis is applied to two alternative input-output specifications to measure technical efficiency, and to decompose technical efficiency into its two components, pure technical efficiency and scale efficiency. We also check the consistency of our estimated efficiency scores by examining their relationship with three traditional non-frontier measures of bank performance. In addition, we examine the relationship between bank size and technical efficiency. Our main findings are: (1) technical efficiency of overall commercial banking industry improved in both the countries; (2) public sector banks in India witnessed improvement in both pure technical efficiency and scale efficiency, (3) public sector banks in Pakistan witnessed improvement in scale efficiency only; (4) pure technical efficiency and scale efficiency of private sector banks, foreign and domestic, in both the countries improved after liberalisation; (5) due to high non-performing loans, banks are more efficient in generating loans and advances than in generating income from these assets, and (6) importance of size has declined after the implementation of financial liberalisation.
This paper provides a comparative analysis of the evolution of the technical efficiency of commercial banks in India and Pakistan during 1988-1998, a period characterised by far-reaching changes in the banking industry brought about by financial liberalisation. Data Envelopment Analysis is applied to two alternative input-output specifications to measure technical efficiency, and to decompose technical efficiency into its two components, pure technical efficiency and scale efficiency. We also check the consistency of our estimated efficiency scores by examining their relationship with three traditional non-frontier measures of bank performance. In addition, we examine the relationship between bank size and technical efficiency. We find that the overall technical efficiency of the banking industry of both countries improved gradually over the years, especially after 1995. Unlike public sector banks in India, public sector banks in Pakistan witnessed improvement in scale efficiency only. We also find that banks are relatively more efficient in generating earning assets than in generating income. We attribute this to the presence of high non-performing loans. In addition, we find that gap between the pure technical efficiency of different size groups has declined over the years.
Master's Thesis from the year 2013 in the subject Business economics - Investment and Finance, grade: 1,5, Utrecht University (Utrecht School of Economics), language: English, abstract: Financial liberalization stimulates competition and thereby supposedly increases the efficiency of investment. A simple credit market model is developed to show that such efficiency improvements may be disturbed by competition-induced incentives for banks to accept higher default rates, which result in instability of the financial system. Thereby we offer a complementary explanation to the relationship between competition and stability in financial markets. Consequently we argue that government intervention, in the form of intelligent regulation, is necessary to ensure the development of sustainable financial markets.
This book discusses the relationship between financial liberalization, financial deepening and economic performance from both a theoretical and a policy perspective, comparing several 'big' emerging countries: Argentina, Brazil, China, India, Russia, South Africa and India, amongst others.
​ The goal of this book is to assess the efficacy of India’s financial deregulation programme by analyzing the developments in cost efficiency and total factor productivity growth across different ownership types and size classes in the banking sector over the post-deregulation years. The work also gauges the impact of inclusion or exclusion of a proxy for non-traditional activities on the cost efficiency estimates for Indian banks, and ranking of distinct ownership groups. It also investigates the hitherto neglected aspect of the nature of returns-to-scale in the Indian banking industry. In addition, the work explores the key bank-specific factors that explain the inter-bank variations in efficiency and productivity growth. Overall, the empirical results of this work allow us to ascertain whether the gradualist approach to reforming the banking system in a developing economy like India has yielded the most significant policy goal of achieving efficiency and productivity gains. The authors believe that the findings of this book could give useful policy directions and suggestions to other developing economies that have embarked on a deregulation path or are contemplating doing so.
This book is the thirteenth volume in the International Papers in Political Economy (IPPE) series which explores the latest developments in political economy. A collection of eight papers, the book concentrates on the deregulation of domestic financial markets and discusses financial liberalisation in terms of its past performance, current progress and future developments. The chapters have been written by expert contributors in the field and focus on topics such as past records of financial liberalisation, future policies of regulation, and current account imbalances. Other papers examine capital account regulations in developing and emerging countries, and capital controls in the Eurozone after the 2007 financial crisis. This collection of papers invites readers to consider the impact of financial liberalisation both during and after the global economic crisis. Scholars and students with an interest in political economy, financialisation, and economic performance will find this collection stimulating and informative.
This fascinating and timely work explores in detail the changes in the Indian banking sector over the last 20 years, and puts them into a comparative perspective with the Chinese banking sector. For this purpose, the author develops a detailed indicator-based framework for assessing the liberalization of a banking sector along various process steps based on financial liberalization and transformation studies. The key finding is that while liberalization has improved the sectoral performance, it has so far had no effect on the macro level.
A study of 53 countries during 1980-95 finds that financial liberalization increases the probability of a banking crisis, but less so where the institutional environment is strong. In particular, respect for the rule of law, a low level of corruption, and good contract enforcement are relevant institutional characteristics. the data also show that, after liberalization, financially repressed countries tend to have improved financial development even if they experience a banking crisis. This is not true for financially restrained countries. This paper’s results support a cautious approach to financial liberalization where institutions are weak, even if macroeconomic stabilization has been achieved.