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Technological innovations in the Indian banking industry: the late bloomer

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Abstract:

Given that technological innovations in the banking sector in industrialised countries have been shown to increase productivity of this industry around the world, then why did India shy away from adopting this technology until the 1990s? Why has India been a late adopter of technology in the banking industry when it could have reaped the benefits from the existing R&D expertise developed by innovators and early adopters? This article charts out the path of technological innovation in the Indian banking industry post-economic liberalisation (1991-2) and identifies initial conditions in terms of competitive environment and regulatory pressures that have contributed to the diffusion of these innovations. The article highlights the role of labour unions in public sector banks and their initial opposition to technological adoption. The empirical analysis demonstrates the superior performance of the early adopters of technology (private sector and foreign banks) as measured by productivity, returns on equity, and market share, as compared to the late or passive adopters (public sector banks).

Keywords: India; banking; technology; unions

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/0958520042000277801

Affiliations: 1: Economics at Seattle University 900 Broadway Seattle WA 98122-4340 USA +1 206 296 5700, Email: rishim@seattleu.edu 2: University of Pittsburgh Pittsburgh PA 15260 USA +1 412 648 7613 +1 412 648 2605, Email: ssaxena@gspia.pitt.edu

Publication date: November 1, 2004

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