Comparing the Technical Efficiency of Indian Banks Operating Abroad and Foreign Banks Operating in India: A Stochastic Output Distance Function Approach

The aim of this paper is to compare the technical efficiency of Indian Banks operating abroad and foreign banks operating in India and to investigate the effect of openness of the country, ownership pattern of the banks on their technical efficiency. Furthermore, we test whether the banks operating in developed and developing countries have different level of technical efficiency. This paper is based on the information collected through annual surveys on International Trade in Banking Services conducted by the Reserve Bank of India for the period 2006-2007 to 2008-09 supplemented with the data collected from various issues of statistical tables relating to banks and bank scope database. The results reveal that Indian Banks operating abroad are more efficient than the foreign banks operating in India and banks operating in developed countries are found to be more efficient than the banks operating in developing countries. The effect of openness of the country as well as ownership pattern of the Indian banks operating outside India has no significant effect on their technical efficiency.