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Is there a trade-off between social and financial performance of public commercial banks in India? A multi-activity DEA model with shared inputs and undesirable outputs

  • Mahinda Wijesiri
  • Almudena Martínez-Campillo
  • Peter Wanke
Original Paper

Abstract

Indian public commercial banks play a crucial role in the financial support for the economic development, poverty alleviation, and women's empowerment. As social banks, they have dual performance objectives of financing the vulnerable sections of society as well as providing mainstream financial services. Balancing these twin missions is the biggest challenge for these hybrid enterprises. To date, no study has been published giving evidence on whether these banks are efficient in both facets of their dual goals. For this reason, this paper adds to the literature by measuring the social and financial efficiency of a sample of 26 Indian public banks over 2011–2014 by using an innovative Multi-activity Data Envelopment Analysis (MDEA) model with shared inputs and undesirable outputs. Our study also examines whether there is a conflict or trade-off between socially responsible and for-profit banking practices. We find that Indian public banks have managed their dual mission relatively well, but on average, they have been much more efficient in social (99.4%) than conventional banking (81.9%) activity. Moreover, this study shows a significant synergy effect between social and financial performance. However, when regional differences across India are considered by comparing the social and financial efficiency scores for different degrees of economic and human development in Indian states, the significant synergy effect is only confirmed in those public banks located in less more economically developed Indian states.

Keywords

Social efficiency Financial efficiency Trade-off Indian commercial banks Multi-activity DEA model 

JEL Classification

G21 H21 C44 

Notes

Acknowledgement

A previous version of this paper was accepted to present at the 2016 Asian Development Bank Institute Workshop “Developing Credit Databases and Credit Scoring for Micro, Small, and Medium-Sized Enterprises and Promoting Start-Up Businesses”. The authors would like to thank two anonymous referees, the Managing Editor and Michael Skully for their helpful comments. The first author is thankful to the International Development Research Centre (IDRC) for financial assistance. Any remaining errors are solely the responsibility of the authors.

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Copyright information

© Springer-Verlag GmbH Germany 2017

Authors and Affiliations

  • Mahinda Wijesiri
    • 1
  • Almudena Martínez-Campillo
    • 2
  • Peter Wanke
    • 3
  1. 1.Indira Gandhi Institute of Development ResearchMumbaiIndia
  2. 2.Faculty of Economics and Business AdministrationUniversity of LeónLeónSpain
  3. 3.COPPEAD Graduate Business SchoolFederal University of Rio de JaneiroRio De JaneiroBrazil

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