Impact of Liquidity on the Efficiency of Banks in India Using Panel Data Analysis

Anureet Virk Sidhu, Rebecca Abraham, Venkata Mrudula Bhimavarapu (), Jagjeevan Kanoujiya and Shailesh Rastogi
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Anureet Virk Sidhu: Symbiosis Institute of Business Management, Symbiosis International (Deemed University), Pune 412115, India
Rebecca Abraham: Huizenga College of Business, Nova South Eastern University, 3301 College Avenue, Fort Lauderdale, FL 33314, USA
Venkata Mrudula Bhimavarapu: Symbiosis School of Banking and Finance, Symbiosis International (Deemed University), Pune 412115, India
Jagjeevan Kanoujiya: Symbiosis Institute of Business Management, Symbiosis International (Deemed University), Pune 412115, India
Shailesh Rastogi: Symbiosis Institute of Business Management, Symbiosis International (Deemed University), Pune 412115, India

JRFM, 2023, vol. 16, issue 9, 1-19

Abstract: The current study investigates the impact of the liquidity coverage ratio (LCR) on the efficiency of Indian banks for the period 2010 to 2019. The study examines the effect of internal bank elements like ownership structure, transparency and disclosure, and technological advancement on the relationship between the LCR and efficiency. Bank efficiency proxied as technical efficiency is evaluated by applying the data envelope analysis approach. Applying the panel data regression technique, the authors discover that the LCR has a positive impact on the technical efficiency at a constant return to scale of banks. The relationship between the LCR and the technical efficiency at a variable return to scale is non-linear. Initially, as liquidity increases, the efficiency of banks improves, after reaching its optimum level, efficiency starts to decline. Furthermore, liquidity tends to improve efficiency of banks with higher promoter stakes, whereas opposing results are evidenced for institutional investors and technological advancement.

Keywords: liquidity coverage ratio; technical efficiency; ownership structure; transparency and disclosure; technological innovation; dynamic panel data analysis (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2023
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