Productivity of Indian Banks since 2000s: Impact of Technology

In the first decade of the onset of the process of liberalization, the objective of the banking sector was to increase productivity, profitability and efficiency of banks. In the second decade, i.e., in the 2000s, more emphasis was given on technology and innovation in order to become more modern, competitive and of course, efficient. Introduction of various IT-embedded products such as Internet banking, mobile banking, RTGS are testimony to this trend. In our paper, we make a modest attempt to find whether this widespread technological transformation has translated into higher productivity and efficiency. For this, we have estimated the non-parametric Malmquist total factor productivity (TFP) index for the period 2001-2010. We have considered deposit, advance and investment as three outputs whereas interest expenses, payments to and provisions for employees and non-employee expenses have been treated as the three inputs. We find the direction of TFP and technological change almost same for the entire time span. The only aberration was the year 2007 which coincided with the global financial recession. The study further finds negative association between TFP and business generated per employee, giving adequate indication of the generation of bad loans.