"Impact of liberalization on financial performance of commercial banks"with special reference to Nepal Bank Limited (Nepal) and State Bank of India (India)

Abstract

The study is an attempt at understanding the impact of liberalization on the financial performance of commercial banks. The specific objectives of the study were to i) examine the growth trend of commercial banks ii) analyze the impact of liberalization on financial performance of commercial banks -with reference of SBI and NBL iii) Make comparisons and forward some suggestions. With reference to commercial banks in general it is perceived that the banking sector reform process has resulted in more liberalized and competitive environment characterized by high growth, greater availability of resources, greater freedom and choice in decision making related to business operations, more choices in business access to technology. ln addition to this, globalization of economies is characterized by the integration of financial systems. Financial intermediaries, especially commercial banks, play a crucial role in the process of economic development and growth by channelizing savings to productive investment. This is especially true for developing economies like India and Nepal where the capital markets are not fully developed. In this context, with the economy opening up, public sector banks are facing cut –throat competition from new private sector banks, which are more efficient and have better understanding of their clientele. This study evaluates the impact of liberalization on the financial performance of public sector banks, with reference to State Bank of India and Nepal Bank Limited. Measures of performance include - spread, burden, profitability and productivity. The study is based on pre-liberalization (1985-1992) and post-liberalization (1993-2000) data. The study reveals favorable impact of liberalization on the spread profitability and productivity of SBI. In the case of Nepal Bank there is an unfavorable impact on burden and profitability. The study explores the possible reasons for these findings.