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Is there a trade-off between social and financial performance of public commercial banks in India? A multi-activity DEA model with shared inputs and undesirable outputs

Mahinda Wijesiri (), Almudena Martínez-Campillo () and Peter Wanke ()
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Mahinda Wijesiri: Indira Gandhi Institute of Development Research
Almudena Martínez-Campillo: University of León
Peter Wanke: Federal University of Rio de Janeiro

Review of Managerial Science, 2019, vol. 13, issue 2, 417-442

Abstract: Abstract Indian public commercial banks play a crucial role in the financial support for the economic development, poverty alleviation, and women's empowerment. As social banks, they have dual performance objectives of financing the vulnerable sections of society as well as providing mainstream financial services. Balancing these twin missions is the biggest challenge for these hybrid enterprises. To date, no study has been published giving evidence on whether these banks are efficient in both facets of their dual goals. For this reason, this paper adds to the literature by measuring the social and financial efficiency of a sample of 26 Indian public banks over 2011–2014 by using an innovative Multi-activity Data Envelopment Analysis (MDEA) model with shared inputs and undesirable outputs. Our study also examines whether there is a conflict or trade-off between socially responsible and for-profit banking practices. We find that Indian public banks have managed their dual mission relatively well, but on average, they have been much more efficient in social (99.4%) than conventional banking (81.9%) activity. Moreover, this study shows a significant synergy effect between social and financial performance. However, when regional differences across India are considered by comparing the social and financial efficiency scores for different degrees of economic and human development in Indian states, the significant synergy effect is only confirmed in those public banks located in less more economically developed Indian states.

Keywords: Social efficiency; Financial efficiency; Trade-off; Indian commercial banks; Multi-activity DEA model (search for similar items in EconPapers)
JEL-codes: G21 H21 C44 (search for similar items in EconPapers)
Date: 2019
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