Ownership structure and bank efficiency in India: new evidence from a meta-frontier approach

This study examines the cost efficiency of Indian commercial banks from 2005 to 2023, focusing on different ownership groups using stochastic meta-frontier analysis to determine whether a common or ownership-specific frontier exists within the economy. By spanning a sample period of nearly two decades, the study offers valuable insights into the long-term trends in cost efficiency. The results highlight the importance of meta-frontier analysis for accurately assessing bank efficiency, considering the distinct technologies utilised by different ownership groups. Additionally, the efficiency scores obtained from the common and ownership frontier tended to be overestimated. Our results provide compelling evidence that Indian banks operate with distinct technologies and operate within separate frontiers. Public-sector banks exhibited the highest meta cost efficiency, while foreign banks demonstrated the lowest. No clear efficiency trend emerged over time, and the Cost Gap Ratio analysis indicates that public-sector banks showed greater innovation in cost minimization. There was limited evidence of convergence across ownership groups. Among the determinants of efficiency, significant factors included the repo rate, size, ROE, NPA, and bank age.