The chapter examines and contrasts the cost and profit efficiency of India's public system banks (PSBs) after the reforms to the banking system in 1991. Between 1995 and 2017, or from the beginning of the post-liberalization period until the significant State Bank of India merger in 2017, the data was gathered and reviewed. The average profit efficiency (PE) and cost efficiency (CE) ratings were looked at annually for every PSB in India. The distribution and median of efficiency scores in two subperiods were also assessed using non-parametric Friedman's two-way Annova and Wilcoxon signed rank tests. The results demonstrated that PSBs exhibited profit inefficiencies over the selected time. Over the whole period, PE scores are lower than CE scores. Significant differences amongst public sector banks between 1995 and 2022 were also shown by the findings. Moreover, PSBs' PE has been declining since India's 1991 banking sector reform.
Top1. Introduction
Because they are the backbone of the economy, banks play a major role in infrastructure development, rural development, and GDP growth in the nation. Banks have a special role in sustainable development because of the multiplier impact of their financial services on the overall economy and long-term sustainability. Commercial banks are similar to other businesses in that they are publicly traded on stock exchanges, have a substantial branch network and generate significant revenues, positioning them as one of the nation's largest enterprises. They were established with the primary goal of making profits for their shareholders. The banks owe a responsibility to the society that uses their products and services to sustain them.
This study was created with the intention of expanding on earlier internal integration research and practice. Although there is no doubt about the significance of internal integration, the majority of academic research on the topic has been descriptive, has not produced much theoretical advancement, and has not produced compelling data supporting the link between internal integration and profit. Furthermore, managers believe there is substantial space for development in real practice. In this context, we measure achieved internal integration, firmly establish our expectations in IPT, explore the direct impact of internal integration on performance through objectively reported financial metrics, and examine the contingency of supply chain process span to add rigor and relevance to the study of internal integration. Our three hypotheses have two supporting evidences, one incomplete evidence, and one no evidence at all. The conclusions drawn from these data have fascinating ramifications for how well IPT may be used to the study of internal integration, as will be discussed below. The distinct effects of internal integration on different financial performance metrics are particularly intriguing as they allow us to develop a more focused theory of internal integration via the lens of IPT.
We initially hypothesized the positive correlation between internal integration and profitability as determined by ROA (H1), basing our assumptions in IPT. According to Galbraith (1973), internal integration provides increased information processing capacities. The findings substantially support this concept. When supporting organizational infrastructures and procedures make it possible to process information accurately and effectively, including distributing it to the right parties inside the company, internal integration is accomplished. This makes things more visible, lowers ambiguity, and facilitates wise decision-making. Clarifications, equivocality, and constrained rationality may all be resolved via the employment of integration mechanisms like teams and give-and-take exchanges of new knowledge. These methods of information processing enable the creation of more thorough situation evaluations, the better allocation of resources, the better alignment of functional objectives and plans, and the reduction of redundancies and uncertainty buffers. Profitability (ROA) may be raised in these ways.
We looked for further information on the financial support for the several advantages mentioned above in order to provide the analysis of internal integration's effect on ROA more rigor and significance. Thus, we separately hypothesized and investigated the positive correlation between internal integration and the components of ROA, namely ROS (H2, process efficiency) and ATO (H3, asset productivity). Higher levels of ROS provide evidence that internal integration results in increased planning and process efficiency, which supports our second hypothesis. Internal integration provides access to infrastructure mechanisms that may enhance, automate, and simplify information flows, lowering the costs associated with both direct execution and indirect overhead.