Is there excess capacity in rural banking markets: Some empirical insights for India

According to economic theory, there are at least three indicators of excess capacity in banking: (a) low loan-to-asset ratio, (b) low profitability and (c) high per unit operating expense. If excess capacity exists, it will be easiest to identify, through these indicators, at regional rural banks. Using bank level data on regional rural banks in India for the period 1991 to 2001, the paper uncovers little evidence of excess capacity using simultaneous equation techniques; univariate analysis reinforces the findings.