Working Paper: Productivity growth in Indian banking: Who did the gains accrue to?

Author: Rajeswari Sengupta and Harsh Vardhan

Title: Productivity growth in Indian banking: Who did the gains accrue to?

Abstract: In this paper we analyse the beneficiaries of productivity gains in the Indian banking sector during the period from 1992 to 2019. We document the relative efficiency of different groups of banks by owner- ship. We find that the Indian banking sector, particularly the public sector banks experienced steady productivity growth from the mid 1990s till about 2010. We conduct a detailed descriptive analysis to examine the various stakeholders that the productivity gains have accrued to, over the years and across bank groups. We conclude that most of the gains may have accrued to the shareholders which for the public sector banks would mean the government. These gains presum- ably helped reduce the burden on the government of capitalising the public sector banks, especially during the 1997-2002 period of sharp rise in non performing assets.

Keywords: Banking sector, Bank productivity, Beneficiaries, Efficiency gains.

JEL Code: G21, G28, D24, D61