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The IUP Journal of Bank Management
Detection of Dissimilarity Among Different Indian Banks: An MDS Approach
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This paper addresses the aspect of detection of dissimilarity (in terms of 10 performance indicators) existing among major Indian banks. Towards attainment of the goal the well-known Multidimensional Scaling (MDS) approach has been employed. The interesting outcome of the paper is that the MDS technique is capable of discerning the dissimilarity (in relative terms) existing in the overall performance behavior (based on a number of relevant performance parameters) in the case of 37 leading Indian banks during the period 2004-05 to 2013-14 based on data obtained on yearly basis for this purpose. The dynamics of the overall performance behavior over time (year after year) during the above-mentioned period with respect to the parameters studied has been obtained. MDS analysis reveals that the four banks—SBI, ICICI, AXIS and PNB—differ significantly from the other 33 banks in each year in the mentioned period. Thus, MDS approach brings out an important feature related to inter-banks’ differentiating status where a comparison of different banks is performed with the help of several attributes or performance indicators. In the introduction section, an exhaustive and interesting review of the major research works undertaken on the performance of Indian banks (available in literature as surveyed by us) has been presented.

 
 
 

Banks are the backbone of a country’s economy.1 The commercial banks play a vital role in the economy for two reasons: they provide a major source of financial intermediation and their checkable deposit liabilities represent the bulk of the nation’s money stock (Yue, 1992). As banks are seen as special, given their pivotal role in providing credit to enterprises, a great deal of attention is given to the performance of banks, expressed in terms of competition, concentration, efficiency, productivity and profitability (Bikker and Bos, 2008). Since many of these indicators cannot be observed directly, various indirect measures in the form of simple indicators or complex models have been devised and used in theory and in practice (Bikker, 2010). One of the widely used systems to measure the efficiency and performance of the bank is the CAMELS rating system developed in the US to classify a bank’s overall condition (Goyal, 2011). The acronym CAMELS stands for the following factors that examiners use to rate bank institutions—Capital Adequacy, Asset Quality, Management, Earnings, Liquidity and Sensitivity to the Market Risk (Lopez, 1999).2 The CAMELS method provides a measurement of a bank’s current overall financial, managerial, operational, and compliance performances (Goyal, 2011). Though originally developed in USA, the CAMELS method has been widely used in other countries for measurement of bank’s performance. Lopez (1999) and Dang (2011) present some of the works which involve using CAMELS method for US bank performance analysis. The CAMELS method has been extensibility used in other countries also (Goyal, 2011). The prominent use of CAMELS method for determination of bank performance in other countries includes the study undertaken in countries, viz.,

 
 
 
Bank Management Journal, Detection of Dissimilarity Among Different Indian Banks, An MDS Approach