The Assessment of Operational Efficiency of Commercial Banks in India Using Cost to Income Ratio Approach
Subject Areas : General Management
S. Hussain
1
(Department of Business and Financial Studies, University of Kashmir, Srinagar, Kashmir, India)
Keywords: operational efficiency, Cost to income ratio, Key Performance Indicators, Safety threshold, Operating margin,
Abstract :
During the last two decades, financial institutions worldwide have witnessed a lot of stress in managing theirmargins in wake of the new risks, challenges and increase in the competition posed to them by the factors ofliberalization and deregulation. The key to create value and achieve competitive edge lies in the better operationalefficiency and productivity of these institutions under such conditions. Since long, banks have been using variousratios to assess their operational performance. Among these, cost to income ratio (CIR) has seen wideracceptability for its simplicity and intuitive nature. The current paper analyses cost to income ratio of commercialbanks operating in India with the objective to explore a benchmark cost to income ratio (CIR) which could beused to differentiate banks for their operational efficiency. A comparative analysis has also been undertaken toexamine the impact of size and ownership features of banks on their cost to income ratio (CIR). The study as awhole reveals that banks operating in India operate under competitive CIR ratio well in line with the internationaloperational efficiency standards. Also, it is found that size and ownership characteristics influence strongly indetermining the operational efficiency of banks operating in India.