Demonetization, Financial Inclusion and Bank Efficiency : Evidence from India

We examine the impact of Demonetization and Financial Inclusion on bank performance in India using three measures of efficiency, namely, New Profit, New Cost, and New Technical, across Size and Ownership groups. Data Envelopment Analysis (DEA), a non-parametric, mathematical programming technique is employed, to estimate bank efficiency for 2011 to 2019 period. In second stage, we examine difference in the impact of the event across groups, using Repeated ANOVA. We find significant impact across size and ownership, albeit not uniform across groups, events, and efficiency types. There was an increase in the number of frontier banks. SBI, the state-owned and largest bank, with most significant role in those policy had seen positive impact on cost and profit efficiency. Our study is perhaps the first of its kind to examine demonetization and Financial Inclusion impact on banking sector and two-stage estimation that combines DEA with repeated ANOVA. Our study carries useful managerial and policy implications and provides much needed scientific evidence to the popular debate on impact of the events