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Impact of non-traditional activities on the efficiency of Indian banks: an empirical investigation

Rachita Gulati () and Sunil Kumar

Macroeconomics and Finance in Emerging Market Economies, 2011, vol. 4, issue 1, 125-166

Abstract: This article investigates the relevance of the inclusion of non-traditional activities in the specification of banks' output on the efficiency of Indian banks. The results indicate that the exclusion of non-traditional activities not only understates the cost, technical and allocative efficiencies of individual banks but also affects the ranking of ownership groups in the industry. In particular, when a proxy for non-traditional activities is accounted for in the output specification, the foreign banks appear to be more efficient than public and private sector banks. Overall, the results reinforce the prevailing view in the extant literature that the exclusion of non-traditional activities causes misspecification of banks' output, and may distort the efficiency estimates.

Keywords: non-traditional activities; data envelopment analysis; cost efficiency; technical efficiency; allocative efficiency; Indian banks (search for similar items in EconPapers)
Date: 2011
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DOI: 10.1080/17520843.2010.530939

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