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Liberalization of the Indian financial sector has thrown open the doors for Foreign Banks (FBs) to spread their wings far and wide. This has resulted in an increasingly competitive environment in the Indian banking industry. Consequently, many FBs, with their financial muscle power, have attained commanding heights in India. This paper assesses the operational efficiency of FBs in India using the data for the period 1996-97 to 2004-05. The authors use ANOVA (Analysis of Variance) to find that there is no significant relationship between operational efficiency and variables such as size of assets, branch network and stall strength.
Foreign Banks (FBs) have scaled commanding heights right from the beginning of the modern banking era in India. In the emerging financial and banking scenario of openness, economic liberalization and globalization, and promotion of greater economic efficiency, the need for an expanded role and operation of foreign banks has gained further backing in India. At the end of March 2005, India had 33 FBs from a large number of countries cutting across Europe, the US and the Far East, with as many as 245 offices operating across the country. India has already committed to World Trade Organization (WTO) to permit 12 branches of FBs in a year, subject to the prevailing prudential considerations, either to enter or augment their presence in India. The declaration of the `Road Map of FBs' by the Reserve Bank of India (RBI) in February 2005, envisages two distinct phases of change - the first allows FBs to establish their presence through wholly owned subsidiaries, and the second opens up the market for acquisition of weak banks that RBI deems appropriate for consolidation. The second and more encompassing phase is slated to begin at the earliest, when FBs may be permitted to acquire controlling stakes in privately owned Indian banks. In this context an attempt has been made to assess the operational efficiency of FBs operating in India.
The data collected for this study pertain to a period of nine years from 1996-1997 to 2004-2005. During the period 1998-2004, there were several mergers and six banks have closed their operations in India. Some banks were excluded from the study due to incomparability of their financial statements with other banks as a consequence of differing periods of statement. In order to have meaningful comparisons, banks having similar periods of operations were selected. Accordingly 31 FBs were selected for this study. Analysis Of Variance (ANOVA) has been used to find the significance of the differences in operational efficiency among FBs differing in the size of assets, network of branches and staff strength. |
