Profitability and marketability efficiency dimensions of banking performance: private versus public banks in India

Purpose The study aims to evaluate profitability and marketability efficiency of banks in India, considering these as indicators of overall bank efficiency. It examines the impact of these efficiency dimensions on banking performance and further investigates the direction of causality between efficiency (profitability and marketability) and banking performance. Design/methodology/approach The study analyses panel data from 15 private and 12 public sector listed banks during 2005–2024. Banking performance is measured by three indicators: return on assets, return on equity and Tobin's Q, capturing both accounting and market performance. Profitability and marketability efficiency scores are computed using data envelopment analysis. To examine and analyse the impact of efficiency on banking performance, generalized method of moments is applied, while the Dumitrescu and Hurlin (2012) Granger non-causality test is employed to investigate causality. Findings The results reveal an overall improvement in profitability and marketability efficiency of banks in India during 2005–2024. Private sector banks demonstrate greater profitability efficiency, while public sector banks exhibit higher marketability efficiency. Both types of efficiency show a significantly positive impact on banking performance. Furthermore, the study identifies a bidirectional causal relationship between profitability efficiency and banking performance and a unidirectional causality from marketability efficiency to banking performance. Practical implications The study highlights that efficiency of banks is crucial for better banking performance. As the performance of banks is reflected by their current stock market value, marketability efficiency is equally as critical as profitability efficiency. Hence, focus is required on improving profitability efficiency to realize higher profits and marketability efficiency to enhance their market value and generate higher returns for shareholders. Originality/value The originality of the study lies in investigating the simultaneous impact of both profitability and marketability efficiency on the performance of the Indian banking sector. Additionally, the study explores causality between efficiency (profitability and marketability) and banking performance, which remains relatively unexplored.