The Impact of Bank Internationalization on Indian Economy

Proceedings of the Fifth Middle East Conference on Global Business, Economics, Finance and

Banking (ME16Dubai October Conference) ISBN: 978-1-943579-27-3.

Dubai-UAE. 14-16 October, 2016. Paper ID: DF635

1 www.globalbizresearch.org

The Impact of Bank Internationalization on Indian Economy

Massand Ajay B.,

Research Scholar,

School of Management,

National Institute of Technology Karnataka (NITK), India.

E-mail: [email protected]

Gopalakrishna B. V.,

School of Management,

National Institute of Technology Karnataka (NITK), India.

E-mail: [email protected]

Abstract

The study investigates the impact of foreign banks’ penetration on the performance of

domestic banks in India. The study also analyse the impact of foreign direct investment into

Indian domestic banks. The study uses financial data by forming a panel data set of 44 Indian

commercial banks for the period of 1999 to 2014. The study finds positive effects of bank

internationalization on the performance of domestic commercial banks in India. Foreign

banks bring competition in the Indian banking sector. Foreign banks make Indian commercial

banks more profitable in spite of dampening margins, they reduce costs, and improve asset

quality of Indian commercial banks. To seek the benefits of competition from the foreign

banks, RBI and Government of India should allow more offices of foreign banks and should

raise the limit of bank FDI in India.

Key Words: bank internationalization; foreign banks; bank FDI; Indian commercial banks;

bank performance

JEL Classification : F21, F23, G21

mailto:[email protected]





1. Introduction

Entry of foreign banks into host banking market which is known as Bank

Internationalization is being followed rapidly across developing and developed economies of

the world. The widely accepted reasons for bank Internationalization are – the liberalization

of financial systems and formation of international organizations like World Trade

Organization (WTO) and International Monetary Fund (IMF) that have contributed towards

the establishment of foreign banks (Kim and Pant, 2010; Gormely, 2010) and the

development of sophisticated technology and communication system that made it easy to

monitor foreign banks by home country regulator (Berger et al. 2003). According to Global

Financial Stability Report (IMF, 2014) the increased cross country banking claims and

transactional statistics have touched half of the global GDP in 2007 which indicates the level

of bank internationalization in recent times. Another fact representing increased bank

internationalization is – asset share of foreign banks in the host banking market, especially in

the developing economies. In developing countries like Czech Republic, the share of bank

assets held by foreign banks was 10 percent in 1990 and 84 percent in 2011; in Hungary, the

figures were 10 percent in 1990 and 85 percent in 2011; while in Argentina, it was 10 percent

in 1990 and 48 percent in 2004; in Mexico, it raised from a mere 2 percent in 1990 to 82

percent in 2004; and in Croatia, it was 4 percent in 1997 and 92 percent in 2011 (IMF, 2013).

Foreign banks have captured 20 percent of the entire asset share in Organization for

Economic Cooperation and Development (OECD) nations and, on an average, 50 percent in

emerging and developing countries (Claessens and Horen, 2012). Thus, the penetration of

foreign banks into the host nations has been rapid which raised concerns among the

economists over the intention of entry of foreign banks and their impact on the host banking

sector. This study makes an attempt to analyze this concerns of Indian economist and

empirically tests the impact of foreign banks entry on the performance of the domestic banks.

The development of foreign banks, apart from fetching more capital, brings competition

in the market (Barajas et al., 2000; Claessens et al., 2001; Jeon et al., 2011; Lee et al., 2012;

Mulyaningsih et al., 2015) that leads to an efficient banking sector (Claessens et al., 2001;

Unite and Sullivan, 2003; Lehner and Schnitzer, 2008). However, the profit of domestic

commercial banks have enhanced in some developing countries after the entry of foreign

banks. Based on these results, a few studies argue that actual competition in the host counties

decreases with the entry of foreign banks (Sathye, 2003; Hermes and Lensink, 2004 and

Ghosh, 2012). Moreover, foreign banks charge low interest margin in the host economies

(Ghosh, 2012) that makes them earn more profits and perform better than their domestic

counterparts (Sabi, 1996; Chen and Liao, 2011; Claessens and Horen, 2012). Thus, there is a





mixed response in the literature over the impact of foreign banks entry on the performance of

domestic banks.

India had liberalised its banking sector to achieve high competition, profitability, and

efficiency of domestic banks (Government of India, 1991). Though the foreign banks could

not capture high asset share (See Figure 1) due to Indian government’s restrictive policy, the

magnitude of impact of foreign banks on the performance of domestic banks is high (Kalluru

and Bhat, 2009; Gormely, 2010; Ghosh, 2012). In terms of physical presence, foreign banks

have almost fifty percent share according to the number of commercial banks by the end of

2014 in India (See Figure 2). Moreover, it is the mere entry of foreign banks and not the asset

share which alerts domestic banks (Claessens et al., 2001). In India, the impact of entry of

foreign banks demonstrates the reduction in the efficiency gap among the public and the

private banks (Bhaumik and Dimova, 2004). However, the study by Sathey (2003) indicates

that competition could not be achieved in Indian banking sector due to its restrictive policy

regarding foreign banks entry. Thus, the present study investigates the impact of entry of

foreign banks on the performance of Indian banks in terms of competition, profitability, and

efficiency.

Although the first foreign bank was established in India in the year 1853, however, the

presence of foreign banks is recognized after the financial liberalization in 1991. The

Narasimham Committee suggested GOI to liberalize for more foreign banks along with full

scale financial sector reforms to enhance competition and institute level playing field for them

in India. Hence, the Indian banking sector became exposed to greater foreign banks’ entry in

diverse geographical locations and various regions of Indian territory began to receive their

maiden foreign bank. Foreign banks’ entry took a leap when India became a founder member

of the WTO in 1995. Honoring the agreement, Indian government liberalized further for

existing and new foreign banks’ entry; For instance, initially five branches including ATMs

(Automated Teller Machine) were taken on board, eight in 1995, and then twelve in 1998

were permitted. RBI stuck typically to twelve branches till 2006 but later, heightened the

number above twelve branches excluding ATMs (Gormely, 2010). The Indian banking sector

was further liberalized for foreign banks in a phased manner with the discussion paper

published by RBI “Roadmap for the presence of foreign banks in India” in 2005 and the

second phase was implemented in 2013 in place of 2009, the main cause being the Global

financial crisis. The recent discussion paper “Banking Structure in India - The Way Forward”

(2013), published by RBI, set a reminder tone considering foreign banks’ entry in enhancing

domestic competition and efficiency.

According to Consolidated FDI Policy 2015 published by the Department of Industrial

Promotion and Policy (DIPP), only one mode of presence is allowed for foreign banks in

India. It could be as a branch mode, a wholly-owned subsidiary (WOS) mode or a





representative office mode of presence. Moreover, foreign capital is permitted in Indian

domestic banks with a cap of 74 percent in private sector banks and 20 percent in public

sector banks (see Figure 5 and Figure 6). There were 44 foreign banks present with 332

branches from diverse twenty five home nations till 2014 which constitute 50 percent of

bank-share and less than 1 percent of branch share (see Figure 2 and 3). However, in spite of

minimal branch share, foreign banks were able to capture 7 percent (average) asset share of

total bank assets in India (see Figure 1) that suggests the presence of foreign banks does

matter.

The objective of the present research is topical and timely due to many reasons. Firstly, it

has been a silver jubilee for step-wise liberalization of Indian Economy and financial markets.

Secondly, Indian banking sector is flooded with foreign capital because the domestic

scheduled commercial banks in India have huge foreign capital in their balance sheet (as 74

percent and 20 percent foreign capital is allowed in Indian private and public sector banks

respectively – see Figures 10 and 11). Thirdly, almost half of the scheduled commercial banks

operating in India are foreign owned (44 foreign owned + 46 state owned). Fourthly, by

considering domestic banks of a single country “India” in our panel data set removes any

chance of existence of heteroscedasticity that occurs among countries in cross-country panel

data set (Claessens and Horen, 2014). Fifthly, there is a lack of empirical literature examining

the issue in the Indian context. Hence, the present study considers this as a crucial issue to be

explored. This study aims to contribute to the existing literature by adding to the study on

emerging Indian banking market. It uses bank FDI data in the Indian context and also

includes financial crisis period from 2008 to 2010.

The research paper is organized as follows – part 2 reviews the present relevant literature,

part 3 deals with methodology and data collection, part 4 discusses findings and results, and

part 5 concludes.

2. Review of Literature

Most of the studies dealing with the issue of change in performance of domestic banks

due to foreign banks’ entry are based on developed countries (Mcfadden, 1994; Denizer,

1999; Barajas et. al., 2000) or are cross-national by nature (Terrell, 1986; Claessens et al.,

2001; Hermes and Lensink, 2004; Lee, et al., 2011; Claessens and Horen, 2014). However,

there are contemporary studies on Asian countries and emerging markets such as –

Mulyaningsih et al. (2015) on Indonesian banks; Lee and Hsieh (2014) on the Asian

banking sector; Seo et al. (2013) on the Chinese banking sector; Jeon et al. (2011) on

emerging Asian and Latin American countries, and Wu et al. (2007) on Chinese banking

sector. Thus, the present study investigates the said issue in the Indian context and contributes





to the current trends of academics. Moreover, the various studies highlighting the positive and

negative impact of foreign banks entry are also discussed.

The extensive cross-national study on foreign banks covering 7900 banks in 80 countries

for the time period of 1988 to 1995, conducted by Claessens et al. (2001) revealed that the

presence of foreign banks reduces the margins and profitability of domestic banks. But

according to Hermes and Lensink (2004), the impact of entry of foreign banks depends on the

status of financial development of the host country and the presence of foreign banks in low

levels of financial development pulls up the costs and margins of domestic banks, whereas the

same pushes the costs and margins of domestic banks down in a higher level of financial

development. Lee et al. (2011) supported financial development of the host nations. They

analysed panel data using Generalized Method of Moment (GMM) model in which they

considered 795 banks in 39 countries for the period of 1999 to 2006 and concluded that lower

level of development of the host nation has the positive effects of entry of foreign banks on

the income, profit, and cost of domestic banks. Terrell (1986) found that dampening of

margins, profitability, and cost of domestic banks are associated with the entry of foreign

banks in 14 developed host nations. However, these studies did not control bank and banking

industry specific variables.

Another comprehensive study by Berger and Hannan (1998) researched on the impact of

cost efficiency to over 5000 banks with the high market concertation. The study established

that more concentrated markets demonstrate lower cost efficiency. Thus, competition could

be improved through new foreign entrants than horizontal merger. There are cross countries

studies on foreign banks’ entry that compares the performance of foreign banks with the

domestic commercial banks in the host nations. Chen and Liao (2011) empirically tested

various effects of home and host country variables on foreign banks from 70 countries in the

period of 1992-2006 and found foreign banks more profitable than domestic banks in the

countries whose banking sector is less competitive. Claessens and Horen (2012) used balance

sheet data from many developing countries including India in the period 1999-2006 and found

that there are several determinants of foreign banks’ profitability, like the level of

development, size and monopoly power of the bank, and culture and regulatory distance

between home and host country. The study claimed that foreign banks from high income

county entering into host country that is relatively weak in regulation perform better than

domestic banks. Thus, the effect of foreign banks’ entry differs from country to country as a

host. According to Claessens and Horan (2014) that considered 5324 banks in 137 nations

from 1995 to 2009, documented different effects based on the host and home countries

relationships which tends to create heterogeneity in the sample. Thus, our study is focused on

a single country “India” as the host to study on the effect of foreign banks.





There are studies on individual developed or developing nations but they have mixed

responses over the impact and behaviour of foreign banks in the host nation. To begin with,

Barajas et al. (2000) developed a semi-annual panel data for the Colombian financial sector

and studied the impact of liberalization on the banking sector. The results indicated that it

enhances competition, drops intermediation cost, and refines loan quality. Denizer (1999)

studied the issue in the context of Turkey and found that entry of foreign banks deteriorates

margin, profits, and overhead cost of domestic banks. Sabi (1996) found that foreign banks in

Hungary are more profitable than domestic banks. McFadden (1994) examined the issue in

case of Australia and found improvised operation of domestic banks. Studies available in

developing countries like Peria and Mody (2004) evaluated the impact of foreign banks on

domestic banks in Latin America and found a reduction in costs and spreads of domestic

banks due to increase in competition. Jeon et al. (2011) used panel data for developing

countries of Latin America and Asia from 1997 to 2008 and found that foreign banks enhance

competition in the host emerging markets with their spillover effects.

Unite and Sullivan (2003) studied the effect of foreign banks’ entry in Philippines and

found that foreign competition compels domestic banks to be efficient by reducing their

margins and profitability. Seo et al. (2013) studied the impact of foreign banks on Chinese

domestic banks from 1999 to 2008 and claimed that even though the entry of foreign banks

boost competition and efficiency in the Chinese banking market, it affects profits of domestic

banks negatively. Mulyaningsih et al. (2015) found that the entry of foreign banks in the form

of de novo banks has increased competition and has captured 45 percent of the banking

market by 2010 in Indonesia. The study on Chinese banking sector by Wu et al. (2007) found

that ROA of domestic banks having foreign capital in their balance sheet is lower than the

domestic banks without having foreign capital. Lehner and Schnitzer (2008) found positive

effects due to competition from foreign banks in the host banking market.

A few studies on Indian banking sector have contradictory results. Kalluru and Bhat

(2009) followed Claessens et al. (2001) model to find out the impact of foreign banks on

public sector banks from 1996-2007 in India. The study revealed that foreign banks improve

the profitability and overhead expenses of public sector banks. However, the study further

claimed that it deteriorates asset quality of public sector banks. Gormley (2010) found that

foreign banks lend only to a few profitable firms that results in declining of domestic lending

in India. The study by Ghosh (2012) that examined the impact of foreign banks’ entry from

1996-2007, considered both public as well as private banks in India. It discovered that the

presence of foreign banks boosts the profitability and improves asset quality of domestic

banks. However, it reduces the spreads. Ghosh (2012) did not find any sign of improved

efficiency of domestic banks in India due to the foreign bank's entry. Mohan (2013) discussed

the scenario of foreign banks in India by highlighting the view of World Bank’s global





development financial report of 2008. It praised foreign banks for their spill over effects like

innovative products, risk management techniques, cross-border services, and quality of

service delivery. However, it did not accept foreign banks for their contribution to improvised

financial services, improvised efficiency of domestic banks, and simplification of credit

constraints to the manufacturing sector in India.

We learnt from the above extensive review of literature that the liberalization of the entry

of foreign banks was intended to improve upon the efficiency and productivity of domestic

banks. A few studies found the negative impact and the rest found positive effects of foreign

banks on the host economy. Most of the studies have highlighted about the spill over effects

of foreign banks like bringing new technology and accessing to financial services that

improve the quality and delivery of services. For example, in Czech Republic foreign banks

initiated ATM facility and reached out in remote areas before domestic banks do. Foreign

banks come up with a variety of innovative financial products in terms of technology in

domestic market and encourage domestic banks to follow them. In order to retain the asset

share, domestic banks improve the quality of their services and reduce the delivery time of

banking services. Thus, domestic banks gradually train their employees effectively and hire

highly qualified and experienced employees. The entire process improves the standard of

banking in the home country.

3. Methodology and Data

3.1 Model

The present study investigates the impact of the presence of foreign banks on the

domestic banks’ businesses in India. Claessans et al. (2001) is a very extensive empirical

study first of its kind covering so many countries that has been widely accepted and followed

by many authors. Thus, we also use Claessens’ (2001) model to measure the impact of foreign

banks entry into India. The study is backed by the theoretical concept shown in equation (i)

related with accounting equation that represents that Profit of banks depends on their Interest

Income (II) and other income (OI) subtracted by overhead expense (OD) and loan loss

provision (LP). Change in any of the equation components results in change in the profit. The

theory assumes that for any change in foreign bank share (in terms of foreign capital or

number of foreign banks or the number of foreign banks’ offices or asset share of foreign

banks) marks a change in the domestic bank’s profits. The change occurred due to a change in

the behaviour of domestic bank’s strategy, to compete with foreign banks, by changing any of

the explanatory variable in (i) for a bank.

P = II + OI - OD - LP (i)

P= Profit of Banks, II=Interest Income, OI=Other Income, OD=Overhead expense, LP=Loan

loss Provision.





To capture the entry of foreign banks, the variables used are the foreign bank's assets

normalized by total assets of all schedule banks, number of foreign banks to total banks

present in India, and foreign banks offices to total offices of banks in urban and metropolitan

areas. Here we introduce a new variable, FDI in Indian banking sector normalized by total

FDI into India that captures the impact of foreign capital inflow in the domestic banks along

with the capital inflow in foreign banks. In order to measure the change in the performance of

Indian domestic banks, the variables adopted are NIM (Net Interest Margin), ROA (Return on

Assets), ROE (Return on Equity), Overheads, NPA (Non-Performing Assets). The model for

the study is shown below (ii) and we consider all variables in first difference to estimate short

term relationships among variables.

𝑃𝑖𝑡 = 𝛽0 + 𝛽1𝑆𝑡 + 𝛽2𝐼𝑡 + 𝛽3𝐵𝑡 + 𝛽4𝑀𝑡 + ∈𝑖𝑡 (ii)

Where, 𝑃𝑖𝑡 represents the performance measurement of Indian domestic bank i in the year t

(i.e. NIM or ROA etc.), 𝑆𝑡 represents share of foreign banks in the year t (i.e. foreign banks

share in terms of assets/numbers/branches/bank FDI), 𝐼𝑡 represents individual bank control

variables at time t (i.e. CRAR or Liquidity), 𝐵𝑡 represents bank industry control variable at

time t (i.e. Concentration), 𝑀𝑡 represents macro-economic variables at time t (i.e. GDP

growth and Real interest rates differential). 𝛽0 is intercept and 𝛽1, 𝛽2, 𝛽3, 𝛽4 are the

coefficients of explanatory variables.

3.2 Variables and Hypothesis Defined

The main intention of the study is to capture the effect of entry of foreign banks on the

performance of the Indian domestic banks. Thus, we adopt all the variables from the standard

literature measuring foreign banks entry and performance of the Indian domestic banks. The

various dependent and Independent variables are explained here.

3.3 Dependent Variables

NIM (Net Interest Margin) is a measure of bank competition which is calculated as

interest income subtracted by interest expense normalised by total assets. In general, as

competition increases, banks tend to narrow their margins, thus, NIM diminishes with the rise

in the number of players in the market. Hence, if domestic banks compete with the foreign

banks, the NIM should be condensed. The expected sign for NIM is negative. Barajas et al.,

(2000) and Seo et al., (2013) reported declining spreads of domestic banks. Hermes and

Lensink (2004) found a negative relationship between foreign banks entry and NIM in case of

lower developed nations, while a positive sign for developed nations. Indian studies Gosh

(2012) and Kalluru and Bhat (2009) also found dampening of margins for domestic banks.

However, they did not find statistically significant relationship.

H1: There is a negative relation between the net interest margin of domestic banks and

foreign banks share.





NPA (Non-Performing Asset) is the asset which does not yield any return for the bank. It

can be calculated as substandard, doubtful, and loss loans adjusted for total advances. NPA of

domestic banks could be affected either way due to foreign banks’ penetration. If domestic

banks imitate high credit risk management techniques of foreign banks and improve their

skills for credit valuation or follow foreign banks by accepting only hard information to lend

(Gormley, 2010) that may improve asset quality of domestic banks. On the other hand, if

domestic banks increase lending to compete with foreign banks, they may end up with high

NPAs. Thus, the exact sign for NPA cannot be predicted. Barajas et al., (2000) found a

decline in NPAs of domestic banks due to foreign bank penetration. However, Indian studies

differ in their results. Gosh (2012) reported improvement in asset quality of domestic banks

whereas Kalluru and Bhat (2009) found an increase in NPAs of Indian public sector banks.

H2: Foreign banks share has a significant impact on asset quality of domestic banks.

Overhead (cost) is a measure of operating expense incurred by domestic banks

normalised by total assets. If domestic banks compete with foreign banks to retain their asset

share and spend more money, their overheads will raise. Thus, the expected sign is positive

for this variable. Barajas et. al. (2000) and Gosh (2012) found increase in overheads with

raising foreign banks share. Herms and Lensink (2004) found a positive relation for

developing countries whereas, negative relationship between overheads of domestic banks

and foreign banks’ share of financially developed countries.

H3: There is a negative relation between overheads of domestic banks and foreign banks

share.

ROA (Return on Asset) and ROE (Return on Equity) are the measures of profitability for

banks. ROA is the measure of overall profitability of banks which is calculated by profit

before tax normalised by total assets, and ROE represents the banks’ efficiency to generate

profits for its shareholders which is measured by net profit normalised by capital plus reserves

and surplus. Domestic banks may imitate technology used by foreign banks and train their

employees or hire skilled employees to compete with foreign banks, which raises overall

profitability and high return for their shareholders. Thus, domestic banks increase their

efficiency and get benefited by spill over effect of foreign banks. Hence, the positive

relationship should be expected. However, there are studies which found the negative

relationship, e.g. Claessens et al. (2001) and Unite and Sullivan (2003). Most of the studies,

including Indian studies, found a positive relationship. e.g. Ghosh (2012), Kalluru and Bhat

(2009) and Herms and Lensink (2004).

H4: There is a positive relationship between the profitability of domestic banks and

foreign banks share.





3.4 Independent Variables

As mentioned before, the study adopts four variables to present share of foreign banks.

i.e. BK_FDI (Foreign Direct Investment in Indian banking sector to total FDI inflow in India),

FB_A (foreign banks asset share to total banking asset), FB_N (number of foreign banks to

total commercial banks in India excluding RRBs), FB_O (foreign banks offices to total

offices of banks in India in urban and metropolitan cities). FB_N was used in Herms and

Lensink (2004), Kalluru and Bhat (2010), and Claessens et al. (2001). FB_A was not found

significant in Claessens et al. (2001), hence, many studies avoided this variable including

Indian study Kalluru and Bhat (2009). However, Ghosh (2012) used FB_A, FB_N, and FB_O

in case of India where all the variables were found statistically significant. Hence, the present

study considers all the three variables mentioned above along with BK_FDI which also

represents penetration of foreign banks as it is a long term investment in assets. Moreover, the

previous studies like Nigh et al. (1986), Yamori (1998), and Moshirian (2001) have used

BK_FDI variable as a proxy for the entry of foreign banks.

3.5 Control Variables

The study controls variables related to Individual bank specific, bank industry specific,

and macro-economic variables. Individual bank specific variables used are CRAR and

LIQDT. CRAR (Capital to risk weighted asset ratio) represents Tier I plus Tier II capital

requirement by risk weighted assets. It is the compliance by Individual banks in order to have

asset quality. LIQDT (Liquidity) represents liquidity position of individual banks that

includes Cash in hand, balance with RBI, balance with other banks, and call money. The

study adopts CONC as bank industry specific variable that represents the concentration of top

five banks in terms of deposits. It considers highest aggregate deposits of five banks as a part

of total deposits of all commercial banks in a particular year in India. As the bank's

performance could be influenced by macro-economic variables like economic growth, the

study adopts real GDP growth in the services sector and real interest rates as macro-economic

control variables.

All these variables are collected from RBI’s annual publications – Statistical Tables

related to Banks in India, Handbook of Statistics on the Indian Economy, and The Basic

Statistical Return of Scheduled Commercial Banks. The data on the real interest rate is

collected from World Bank database. The Panel data set has accounting data of 44 domestic

banks from 1999 to 2014. We exclude “Kotak Mahindra bank” and “Yes bank” due to lack of

data throughout the study period. The data for bank FDI is available from 2001 onwards that

makes the panel unbalanced. The study records 616 observations for each variable.

The summary statistics presented in Table 1 is consistent with the data presented by

Ghosh (2012). From Table 4, a positive correlation among bank FDI, foreign banks’ asset

share and foreign banks’ offices is observed. However, an unusual correlation is reported





between the number of foreign banks’ share and offices share of foreign banks; this highly

negative correlation is mainly due to two reasons. First, throughout the study period, the

number of foreign banks have increased whereas, the number of domestic banks have

decreased due to consolidation among Indian banks. There have been around twenty mergers

or consolidation during the study period in Indian banking sector (read more in Goyal and

Joshi, 2011). The similar trend is seen in global economy (read more in Claessens and Van

Horen, 2014); second, the offices of domestic banks have increased more rapidly than foreign

banks’ offices due to the restricted entry limit for opening of foreign banks’ offices.

4. Empirical results

Based on the different explanatory variables measuring foreign banks’ share i.e. foreign

banks asset share, number of foreign banks share, foreign banks offices share, and bank FDI,

we form four different panels A, B, C, and D (see Table 3). The F statistics of all the panels

are statistically significant which indicate that our empirical model is appropriate and the

interpretation of its results make sense. In all the panels the control variables related to bank

specific, industry specific, and macroeconomic variables have been added. The overall results

indicate that foreign banks’ penetration improves competition in the market (H1), improves

asset quality (H2), reduces cost (H3), and raises profitability (H4). The results of the present

study is consistent with the results of the previous studies (see Table 4).

The surge of 10 percent bank FDI leads to drop of 3 percent net interest margin (Column

A-1), similarly, upsurge in 10 percent in foreign banks’ assets leads to drop in net interest

margin by 4 percent (Column B-1). Hence, negative margins represent an increase in

competition. The results of Panels A, B, and C that indicate the negative relation between

foreign banks penetration and net interest margin, are statistically significant. Thus, H1 is

accepted. All the studies in Table 4 got negative results but the results of both the Indian

studies Kalluru and Bhat (2009) and Ghosh (2012) are statistically not significant. In our

results, the result of Panel D of share of foreign banks’ offices is positively significant that

indicates the share in foreign banks’ offices does not add to competition which is due to

restricted entry limit on foreign offices in India (Kim and Pant, 2010; Ghosh, 2012). Hence,

RBI should allow more foreign bank offices to enhance competition in the banking space. As

Indian banking sector is less competitive due to its high NIM than an average NIM of all the

banks in the world (Mohan, 2006) it is argued that foreign banks’ entry tend to reduce NIM in

India. Chen and Liao (2011) found that foreign banks enter into less competitive market and

perform better than domestic commercial banks and Claessens and Horen (2012) provided

evidence that foreign banks entering from high income nations perform better than domestic

banks. This further adds more pressure on the domestic banks that leads to tough competition.





It is evident from the column A-2, B-2, and D-2 that NPA declines with increase in

foreign banks’ share whereas column C-2 shows the opposite result in the case of increase in

number of foreign banks. The results of C-2 is consistent with the results of Kalluru and Bhat

(2009) for Indian study that considered only public sector banks in their data set. Lee et al.

(2011) is another study to use number of foreign banks’ share that did not find statistically

significant results for NPA. However, the results of column A-2, B-2, and D-2 are consistent

with Barajas et al. (2000), Hermes and Lensink (2004) and Ghosh (2012). Hence, we accept

H2.

In case of Overheads, Panel A and B reports negative relationship (column A-3 and

Column B-3), whereas the result in column C-3 is not significant and the result in Column D-

3 is less significant which confirms the foreign banks’ presence deteriorates cost of domestic

banks. Hence, H3 is accepted. Moreover, these results are consistent with most of the previous

studies (see Table 4). However, the result of Indian study Kalluru and Bhat (2009) shows

positive results that can be compared with our result in column C-3 considering only foreign

banks’ number as a dependent variable. We consider only number of foreign banks cannot

provide broad picture especially when the results of other variables develop negative

relationship with Overheads.

The results of profitability are mixed. On one hand, Column A-4, A-5, D-4 and D-5

suggest inclining profitability due to foreign bank penetration, on the other hand, column C-4

and C-5 show opposite results. This indicate that enhancement in number of foreign banks has

adverse effect on profitability of domestic banks but the enhancement in number of offices of

foreign banks and foreign investment in domestic banks bring more profitability to domestic

banks. The results of previous studies Claessens et al. (2001), Unite and Sullivan, Wu et al.

(2007) and Lee et al. (2011) support the decline in the profitability of domestic banks.

However, the results of the Indian studies Kalluru and Bhat (2009) and Ghosh (2012) found

increasing profitability of domestic banks in spite of decline in the margins which reveals that

domestic banks in India have adopted high technology and utilized it properly to raise their

profits. Indian commercial banks are already into other businesses like investment banking,

selling of mutual funds and insurance products etc. However, the commercial banks are also

allowed to invest by RBI. Considering all these facts regarding increased banking scope for

Indian banks, we accept H4. Moreover, the results of the study are for short term period that

can change over the long run.

In general, foreign banks’ presence raise efficiency of domestic banks with improving

profitability and reducing overhead cost for them. Seo et al. (2013) uses a variable

representing efficiency and claims enhancement in the efficiency of Chinese banks due to

foreign banks’ entry. However, Ghosh (2012) considers efficiency variable in case of Indian





banking sector that does not claim for efficiency improvement due to having mixed results for

different variables.

The results of Control variables are in line with the general expectations. CRAR evidence

to raise margins and profitability while controls in the reduction of overheads and NPAs

which is the main objective of holding capital for adjusting risk (see Table 3). The results also

evidence that proper liquidity utilization enhance margins and holding high liquidity enhance

costs. If the bank concentration remains high, the NPAs and overhead cost increases which is

clearly observed from results (Table 3) in the case of Indian domestic banks. The growth in

macroeconomic variables service sector and real interest rates result in boosting competition

that reduce profitability but raise overheads. We also control for Crisis period as it may affect

the performance of banks. The results of crisis dummy variables are diverse that could be due

to the selection of wrong dummies. However, we interpret the results considering highly

significant variables, crisis leads to high NPAs (column A-2) and overheads (column B-3)

that shrink margins (column C-2) and operating profits (column D-4). However, it increases

return on equity that could be a short term phenomena due to stock-market crash which leads

to lower the share value that represents major reduction in market capitalization. If the

reported reduction in capital is proportionately higher than the reduction in banks’ net profit,

it tends to shows high ROE.

The above results suggest that Indian domestic banks have raised their profits in spite of

reduction in their margins that could be due to decline in overhead costs. Thus, the efficiency

of domestic banks is increased due to foreign banks penetration. Sophisticated technology is

an important factor for efficiency enhancement (IMF, 2000). The reasons could be the

adaptation of high technology and usage of innovative sophisticated financial products by

Indian domestic banks that are considered as spill over effects of foreign banks. There are

sufficient examples prevailing in the history of Indian banking sector e.g. first ATM in India

was introduced by HSBC (Hong Kong and Shanghai Banking Corporation) in 1987 while

Citibank and Standard Chartered banks have introduced credit card and credit card with photo

respectively (Kim and Pant, 2010). The concepts of Car loan and Home loan are believed to

be adopted from foreign banks in India. Today, there are over 0.18 million ATMs (on site +

off site) and 21.4 million outstanding credit cards in India (RBI). Moreover, foreign banks

typically charge lower interest rates as compared to domestic banks in India (Ghosh, 2012)

that further leads to reduction in the margin of domestic banks to compete with foreign banks.

As evidenced from results that foreign banks improve asset quality of domestic banks. This is

due to Indian domestic banks learned high credit risk management techniques from foreign

banks and lend on hard information avoiding opaque information firms (Gormely, 2010).

Thus, there is an improvement in the performance of Indian domestic banks due to foreign

banks’ presence.





5. Conclusion

The liberalization has invited many foreign banks and foreign capital into the Indian

economy. However, at the time of liberalization of Indian economy the aim set for the entry

of foreign banks, is yet to be tested. This study makes an attempt to measure the impact of

foreign banks entry and bank FDI inflow on the performance of the domestic banks. Using

the accounting data of 44 domestic banks, the present study uses a panel data model for the

period of 1999 to 2014 and investigates the above objectives. The study considers four

measures of foreign banks’ share -- foreign banks numbers share, their offices share, their

asset share and foreign direct investment in the Indian banking sector. The study finds that

foreign bank's outreach has positive effects on the performance of domestic banks business.

The entry allows more competition and enhances efficiency of domestic banks by raising their

profitability and reducing overheads. The presence of foreign banks improves asset quality of

domestic banks, which is believed to be due to transfer of high credit risk management

techniques of foreign banks. Thus, the spill over effects of foreign banks are clearly visible in

the Indian banking sector with the use of high technology and improvised banking facilities.

Thus, the study suggests policy makers to provide more scope for bank FDI and ease the entry

limit for foreign banks offices in India.

References

Barajas, A., Steiner, R. and Salazar, N., 2000. The impact of liberalization and foreign investment in

Colombia's financial sector. Journal of development economics, 63(1), pp.157-196.

doi:10.1016/S0304-3878(00)00104-8.

Berger, A.N. and Hannan, T.H., 1998. The efficiency cost of market power in the banking industry: A

test of the “quiet life” and related hypotheses. Review of Economics and Statistics, 80(3), pp.454-465.

Berger, A.N., Dai, Q., Ongena, S. and Smith, D.C., 2003. To what extent will the banking industry be

globalized? A study of bank nationality and reach in 20 European nations. Journal of Banking &

Finance, 27(3), pp.383-415.

Bhaumik, S.K. and Dimova, R., 2004. How important is ownership in a market with level playing

field? The Indian banking sector revisited. Journal of Comparative Economics, 32(1), pp.165-180.

Chen, S.H. and Liao, C.C., 2011. Are foreign banks more profitable than domestic banks? Home-and

host-country effects of banking market structure, governance, and supervision. Journal of Banking &

Finance, 35(4), pp.819-839.

Claessens, S. and Horen, N., 2014. Foreign banks: Trends and impact. Journal of Money, Credit and

Banking, 46(s1), pp.295-326.

Claessens, S. and Van Horen, N., 2012. Being a foreigner among domestic banks: Asset or

liability? Journal of Banking & Finance, 36(5), pp.1276-1290.

Claessens, S., Demirgüç-Kunt, A. and Huizinga, H., 2001. How does foreign entry affect domestic

banking markets? Journal of Banking & Finance, 25(5), pp.891-911.

Denizer, C., 1999. Foreign entry in Turkey's banking sector, 1980-97. World Bank Policy Research

Working Paper, (2462).

Department of Industrial Policy and Promotion 2015. Consolidated FDI Policy Circular. Ministry of

Commerce and Industry, GOI.





Ghosh, S., 2012. Foreign banks in India: liabilities or assets? Economic Papers: A journal of applied

economics and policy, 31(2), pp.225-243.

Gormley, T.A., 2010. The impact of foreign bank entry in emerging markets: Evidence from

India. Journal of Financial Intermediation, 19(1), pp.26-51.

Government of India, 1991. Report of the Committee on the Financial System. (Chairman: Shri M.

Narasimham), New Delhi.

Goyal, K.A. and Joshi, V., 2011. Mergers in Banking Industry of India: Some Emerging Issues. Asian

Journal of Business and Management Sciences, 1(2), pp.157-165.

Hermes, N. and Lensink, R., 2004. Foreign bank presence, domestic bank performance and financial

development. Journal of Emerging Market Finance, 3(2), pp.207-229.

International Monetary Fund (2013). Global Financial Stability Report (October). IMF, UNTAD,

Washington DC.

International Monetary Fund (2014). Global Financial Stability Report (October). IMF, UNTAD,

Washington DC.

Jeon, B.N., Olivero, M.P. and Wu, J., 2011. Do foreign banks increase competition? Evidence from

emerging Asian and Latin American banking markets. Journal of Banking & Finance, 35(4), pp.856-

875.

Kalluru, S.R. and Bhat, S.K., 2009. Does Foreign Bank Entry Affect Operations of Domestic Banks? A

Study on Indian Public Sector Banks. IUP Journal of Managerial Economics, 7(3/4), p.40.

Kim, M., and Pant, M., 2010. Foreign Investment in the Banking Sector: A Case Study of India, 1986-

2007, PhD thesis, Jawaharlal Nehru University, New Delhi, India.

Lee, C.C. and Hsieh, M.F., 2014. Bank reforms, foreign ownership, and financial stability. Journal of

International Money and Finance, 40, pp.204-224.

Lee, C.C., Hsieh, M.F. and Dai, H.W., 2012. How does foreign bank ownership in the banking sector

affect domestic bank behaviour? A dynamic panel data analysis. Bulletin of Economic

Research, 64(s1), pp.s86-s108.

Lehner, M. and Schnitzer, M., 2008. Entry of foreign banks and their impact on host countries. Journal

of Comparative Economics, 36(3), pp.430-452.

McFadden, C., 1994. Foreign banks in Australia, The World Bank. Mimeo.

Mohan, R., Khan, M.S. and Janjua, M.A., 2005. Reforms, Productivity, and Efficiency in Banking: The

Indian Experience [with Comments]. The Pakistan Development Review, pp.505-538.

Mohan, T.R., 2013. Before and After the Global Crisis. Vikalpa, 39(1), p.161.

Moshirian, F., 2001. International investment in financial services. Journal of Banking &

Finance, 25(2), pp.317-337.

Mulyaningsih, T., Daly, A. and Miranti, R., 2015. Foreign participation and banking competition:

Evidence from the Indonesian banking industry. Journal of Financial Stability, 19, pp.70-82.

Nigh, D., Cho, K.R. and Krishnan, S., 1986. The role of location-related factors in US banking

involvement abroad: an empirical examination. Journal of International Business Studies, 17(3), pp.59-

72.

Peria, M.S.M. and Mody, A., 2004. How foreign participation and market concentration impact bank

spreads: evidence from Latin America. Journal of money, credit and Banking, pp.511-537.

Reserve Bank of India 2011. Roadmap for the presence of Foreign Banks in India. Discussion Paper,

Mumbai, India.

Reserve Bank of India 2013. Banking Structure in India - The Way Forward. Discussion Paper,

Mumbai, India.

Sabi, M., 1996. Comparative analysis of foreign and domestic bank operations in Hungary. Journal of

Comparative Economics, 22(2), pp.179-188.





Sathye, M., 2003. Efficiency of banks in a developing economy: The case of India. European Journal

of Operational Research, 148(3), pp.662-671.

Seo, J.I., Chao, G.S. and Park, S.B., 2013. An Empirical Study on the Impacts of the Chinese Banking

Industry by Foreign Banks' Entry. International Journal of Economics and Finance, 5(1), p.210.

Terrell, H.S., 1986. The role of foreign banks in domestic banking markets, “Financial Policy and

Reform in Pacific-Rim Countries”, red. H. Cheng.

Unite, A.A. and Sullivan, M.J., 2003. The effect of foreign entry and ownership structure on the

Philippine domestic banking market. Journal of Banking & Finance, 27(12), pp.2323-2345.

Wu, H.L., Chen, C.H. and Lin, M.H., 2007. The effect of foreign bank entry on the operational

performance of commercial banks in the Chinese transitional economy. Post-Communist

Economies, 19(3), pp.343-357.

Yamori, N., 1998. A note on the location choice of multinational banks: The case of Japanese financial

institutions. Journal of Banking & Finance, 22(1), pp.109-120.





Figure 1: Asset share by foreign banks in India (in percentage from 1999 to 2014)

.064

.068

.072

.076

.080

.084

.088

.064

.068

.072

.076

.080

.084

.088

99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Source Statistical Tables relating to banks in India published by RBI

Figure 2: Number of foreign banks in India (in percentage from 1999 to 2014)

.32

.36

.40

.44

.48

.52

.32

.36

.40

.44

.48

.52

99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14


Figure 3: Foreign banks’ offices in India (in percentage from 1999 to 2014)

.0068

.0072

.0076

.0080

.0084

.0088

.0092

.0096

.0100

.0104

.0068

.0072

.0076

.0080

.0084

.0088

.0092

.0096

.0100

.0104

99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14






Figure 4: Share of Bank FDI inflow to the total FDI flow in India (in percentage from

2001 to 2013)

.00

.01

.02

.03

.04

.05

.06

.07

.00

.01

.02

.03

.04

.05

.06

.07

99 00 01 02 03 04 05 06 07 08 09 10 11 12 13

BK_FDI

Source RBI (through Right to Information)

Figure 5: Foreign Investment in Private Banks in India1 (as on March 2014)


34.728.9

44.752.6

72.1

28.621.8

26.0

12.1

0.0

40.046.9

16.9

52.4

36.9

51.4

69.3 71.9

39.8 38.7

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

in p

erce

nta

ge

Name of Private banks





Figure 6: Foreign Investment in Public Sector Banks1 (as on March 2014)


1 Foreign investment into Indian banking sector includes FDI, FII, NRI investment, ECB etc. The

consolidated limit to invest into private Indian banks is 74 percent and in public sector bank in 20

percent. Table: 1 Summary Statistics

Variables Mean S.D. No. of

Observations

Definition

NIM 0.0282 0.0065 616 Interest earned – Interest expended/ Total Asset

NPA 0.0271 0.0297 616 Non-performing assets/ Total Advances

OVHD 0.0208 0.0058 616 Operating expense/ Total Asset

ROA 0.0093 0.0054 616 Net Profit/ Total Asset

ROE 0.1516 0.0958 616 Net Profit/ Capital + Surplus

BK_FDI 0.0229 0.0198 616 FDI inflow into banking/ Total FDI inflow into India

FB_A 0.0728 0.0062 616 Foreign banks’ asset/ Total Asset

FB_N 0.4047 0.0488 616 Number of Foreign banks/ Total schedule commercial

banks excluding RRBs

FB_O 0.0091 0.0010 616 Foreign bank’s offices / Total schedule commercial banks

offices in urban and metropolitan excluding RRBs

CRAR 0.1305 0.0363 616 Tier I + Tier II capital / Risk weighted Assets

LIQDT 0.0881 0.0465 616 Cash in hand + balance with RBI + balance with other

banks + Call money

CONC 0.3939 0.0164 616 Top five banks’ deposits / Total bank deposits

RIR 0.0499 0.0246 616 Real Interest rates growth

SERGW 0.0845 0.0177 616 Growth of service component of GDP (Constant price)

8.2

11.9

16.1

10.5

0.7 0.0

9.1

1.0

3.1

7.7

3.2

6.7

2.2

10.0

3.2

17.2

6.6

4.4

8.6

0.0

2.4 2.00.0

12.0

0.1 0.0

6.0

0.02.04.06.08.0

10.012.014.016.018.020.0

All

ahab

ad B

ank

An

dhra

Ban

k

Ban

k o

f B

aro

da

Ban

k o

f In

dia

Ban

k o

f M

ahar

ash

tra

Bhar

atiy

a M

ahil

a B

ank

…

Can

ara

Ban

k

Cen

tral

Ban

k o

f In

dia

Corp

ora

tio

n B

ank

Den

a B

ank

IDB

I B

ank

Lim

ited

Ind

ian

Ban

k

Ind

ian

Ov

erse

as B

ank

Ori

enta

l B

ank

of…

Pu

nja

b &

Sin

d B

ank

Pu

nja

b N

atio

nal

Ban

k

Sy

ndic

ate

Ban

k

UC

O B

ank

Un

ion B

ank

of

India

Un

ited

Ban

k o

f In

dia

Vij

aya

Ban

k

Sta

te B

ank o

f B

ikan

er &

…

Sta

te B

ank o

f H

yd

erab

ad

Sta

te B

ank o

f In

dia

Sta

te B

ank o

f M

yso

re

Sta

te B

ank o

f P

atia

la

Sta

te B

ank o

f T

rav

anco

re

in p

erce

nta

ge

Name of Public Sector Banks





Table: 2 Correlation of major variables

BK_FDI FB_N FB_A FB_O NIM NPA OVHD ROE ROA

BK_FDI 1.0000

FB_N -0.4387 1.0000

FB_A 0.3612 -0.3625 1.0000

FB_O 0.0634 -0.8582 0.2384 1.0000

NIM -0.0416 -0.1366 -0.1143 0.2056 1.0000

NPA -0.3008 -0.1134 -0.0734 0.3933 -0.0078 1.0000

OVHD -0.0933 -0.2208 -0.0253 0.3665 0.4618 0.4349 1.0000

ROE -0.0272 -0.1013 0.0389 0.1207 0.2955 -0.1653 -0.1819 1.0000

ROA 0.0271 -0.0549 0.0179 0.0252 0.4180 -0.2993 -0.2072 0.7809 1.0000





Table 3: Foreign Bank penetration and domestic bank performance

Panel A Panel B

NIM

(A-1)

NPA

(A-2)

OVHD

(A-3)

ROA

(A-4)

ROE

(A-5)

NIM

(B-1)

NPA

(B-2)

OVHD

(B-3)

ROA

(B-4)

ROE

(B-5)

BK_FDI -0.0312*

(-1.8189)

-0.1328**

(-2.3634)

-0.0345**

(-2.3121)

0.0279*

(1.8641)

0.4878*

(1.8454)

FB_A -0.4227***

(-6.0811)

-0.6398**

(-2.1928)

-0.3216***

(-5.1760)

-0.0229

(-0.3888)

-0.2007

(-0.1859)

CRAR 0.0467***

(6.4208)

-0.112***

(-4.7049)

0.0016

(0.2657)

0.04118*

(6.4835)

0.0206

(0.1842)

0.0440***

(-6.0811)

-0.2103***

(-7.3309)

-0.0106*

(-1.7424)

0.0472***

(8.1303)

0.1876*

(1.7673)

LIQDT 0.0186***

(3.2179)

0.0047

(0.2500)

0.0111**

(2.2100)

0.0008

(0.1755)

-0.0510

(-0.5721)

0.0199***

(3.7574)

0.0291

(1.3035)

0.0145***

(3.0626)

-0.0019

(-0.4408)

-0.0253

(-0.3067)

CONC 0.1526***

(5.7873)

0.5946***

(6.8832)

0.1252***

(5.4608)

0.0317

(1.3799)

0.8997**

(2.2148)

0.0463***

(3.0594)

0.2501***

(3.9344)

0.0427***

(3.1554)

0.0078

(0.6084)

0.2688

(1.1418)

CRISIS -0.0007

(-0.9216)

0.0106***

(4.0183)

0.0006

(0.8926)

0.0009

(1.4038)

0.0399***

(3.2147)

0.0023**

(2.1476)

0.0070

(1.5085)

0.0025***

(2.6208)

0.0013

(1.4633)

0.0376**

(2.1864)

SERGW 0.0211

(0.9444)

-0.547***

(-7.4557)

-0.0011

(-0.0596)

-0.0207

(-1.0577)

-0.7107**

(2.0583)

0.0352**

(2.3383)

-0.2149***

(-3.3944)

0.0244*

(1.8110)

-0.0153

(-1.1935)

-0.4743**

(-2.025)

RIR -0.0671***

(-4.0196)

0.0840

(1.5360)

-0.0060

(-0.415)

0.0106

(0.7279)

0.3282

(1.2763)

0.0396**

(2.3786)

0.5258***

(7.5143)

0.0876***

(5.9884)

0.0139

(0.9862)

0.5135**

(1.9835)

c -0.0374***

(-3.7705)

-0.1535**

(-4.7162)

-0.0291***

(-3.3757)

-0.0080

(-0.9259)

-0.1755

(-1.1463)

0.0277***

(3.8668)

-0.0090

(-0.2997)

0.0204***

(3.1849)

0.0022

(0.7144)

0.0431

(0.3869)

adj R2 0.1658 0.4435 0.1406 0.0804 0.0464 0.1649 0.4190 0.1887 0.0947 0.0278

F-statistics

(pvalue)

17.2229***

(0)

65.962***

(0)

14.346***

(0)

8.1386***

(0)

4.9744***

(0)

19.6005***

(0)

67.3947***

(0)

22.910***

(0)

10.8548***

(0)

3.7016***

(0)

Panel C Panel D





NIM

(C-1)

NPA

(C-2)

OVHD

(C-3)

ROA

(C-4)

ROE

(C-5)

NIM

(D-1)

NPA

(D-2)

OVHD

(D-3)

ROA

(D-4)

ROE

(D-5)

FB_N -0.0162*

(-1.9255)

0.2689***

(8.1565)

0.0072

(0.9707)

-0.0244***

(-3.5365)

-0.3368***

(-2.6534)

FB_O 1.8354***

(3.7843)

-7.1980***

(-3.6184)

0.7247*

(1.6695)

0.9259**

(2.2929)

14.0691*

(1.9048)

CRAR 0.0433***

(6.1755)

-0.1994***

(-7.2605)

-0.0104*

(-1.6696)

0.0462***

(8.0216)

0.1737

(1.6433)

0.0443***

(6.3728)

-0.2117***

(-7.4236)

-0.0105*

(-1.7023)

0.0473***

(8.1877)

0.1899*

(1.7940)

LIQDT 0.0200***

(3.6642)

0.0152

(0.7108)

0.0136***

(2.8111)

-0.0008

(-0.1936)

-0.0096

(-0.1174)

0.0194***

(3.5899)

0.0273

(1.2346)

0.0140***

(2.9067)

-0.0019

(-0.434)

-0.0244

(-0.2973)

CONC 0.0333**

(2.0582)

0.3890***

(6.1421)

0.0434***

(3.0178)

-0.0056

(-0.4231)

0.0847

(0.3474)

0.0270*

(1.7037)

0.3023***

(4.6356)

0.0335**

(2.3585)

4.94E-05

(0.0037)

0.1519

(0.6275)

CRISIS -0.0031***

(-4.1995)

0.0037

(1.2949)

-0.0012*

(-1.8847)

0.0006

(1.1207)

0.0294***

(2.6485)

-0.0026***

(-3.6340)

-0.0016

(-0.5612)

-0.0012**

(0.0976)

-0.0012**

(2.0030)

0.0367***

(3.3537)

SERGW -0.0045

(-0.2180)

0.2214***

(2.7033)

0.0272

(1.4670)

-0.0573***

(-3.3383)

-1.0501***

(-3.3303)

-0.0111

(-0.6328)

-0.1000

(-1.3812)

0.0015

(0.0976)

0.0012**

(2.0030)

-0.7413***

(-2.7558)

RIR -0.0311**

(-2.2531)

0.5478***

(10.1328)

0.0424***

(3.4586)

-0.0002

(-0.0216)

0.3352

(1.6107)

-0.0530***

(-3.4744)

0.5435***

(8.6774)

0.0277**

(2.0330)

-0.0331**

(-2.2547)

0.2604

(1.1197)

c 0.0167*

(1.8435)

-0.2576***

(-7.2552)

-0.0034

(-0.4282)

0.0202***

(2.7205)

0.2979**

(2.1794)

-0.0028

(-0.4459)

-0.0186

(-0.7146)

-0.0003

(-0.0656)

-0.033**

(-2.2547)

-0.0199

(-0.2053)

Adj R2 0.1226 0.4639 0.1566 0.1115 0.0382 0.1365 0.42088 0.1590 0.1017 0.0332

F-statistics

(p-value)

14.1558***

(0)

82.4806

(0)

18.491***

(0)

12.8252

(0)

4.7422***

(0)

15.8926***

(0)

69.4196***

(0)

18.80667

(0)

11.6691***

(0)

4.2353***

(0.0001)

Note: *** represent significant level at 1%, ** represent significant level at 5%, * represent significant level at 10%.





Table 4: Comparison of the results of present study with the previous studies

*results are statistically not significant

Author NIM NPA OVHD ROA

Barajas et al. (2000) Negative Negative Negative

Claessens et al. (2001) Negative Negative Negative

Unite and Sullivan (2003) Negative Negative Negative

Hermes and Lensink (2004)2 Negative Negative Negative Positive

Wu et al. (2007) Negative

Kalluru and Bhat (2009) Negative* Positive Positive Positive

Lee et al. (2011)2 Negative Positive* Negative Negative

Chen and Liao (2011) Positive

Ghosh (2012) Negative* Negative Negative Positive

Seo et al. (2013) Negative

Present study Negative Negative Negative Positive

Date post:	04-Jan-2022
Category:	Documents
Upload:	others
View:	1 times
Download:	0 times

The Impact of Bank Internationalization on Indian Economy

Documents