Regulatory changes and productivity of the banking sector in the Indian sub-continent

This study seeks to measure changes in productivity and technical efficiency levels within banking sectors of the Indian sub-continent: specifically India, Pakistan and Bangladesh, over the period 1993-2001. This study is taken in the context of a number of sweeping reforms across the sub-continent in the early 1990s, and the possible effect this may have had upon efficiency levels. A Malmquist index of total factor productivity (TFP) change over the time period in question is employed, along with a Tobit regression, in order to determine whether these measures of regulatory and financial reform has had the desired effect upon the Indian sub-continent in terms of productivity and efficiency levels. It is found that technical efficiency both increases and converges across the Indian sub-continent in response to reform. India and Bangladesh experienced immediate and sustained growth in technical efficiency, whereas Pakistan endured a reduction in efficiency during the middle years of the study, before rebounding to levels comparable to the rest of the sub-continent in the latter years of the study. These results indicate that the measures employed to modernise the financial sectors of these respective countries have had the desire effects upon levels of technical efficiency.