Financial deregulation, competition and cost efficiency of Indian commercial banks: is there any convergence?

This paper investigates the convergence in cost efficiency among the Indian commercial banks during 1998–2015. We follow a two-step approach: We first employ the double bootstrap procedure of Simar and Wilson (J Econom 136:31–64, 2007) for estimating the bias-corrected cost efficiency scores. Using a dynamic panel framework, we then apply the concepts of β-convergence and σ-convergence from the growth convergence literature to evaluate the convergence process in the banking industry. Our results indicate large difference in mean efficiency among banks across various ownership categories. Further, we observe strong evidence favouring convergence in cost efficiency, driven by both “catching-up” and “lagging-behind” phenomena. The speed of convergence was found highest in state-owned banks, followed by foreign-owned and domestic private banks.