Always striving for input efficiency

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The input efficiency measures concentrate on the degree of efficiency with which banks combine their inputs to produce given level of output at minimum expense. For example, a decline in the ratio of operating costs to net income of banks may be interpreted as an indication of some improvement in bank’s efficiency and, therefore, some possible gain in productivity.

However, such conclusions must be drawn with caution. This measure can be affected by changes in the mark-up over costs so that it reflects the changes in the industry’s competitive practice as much as the changes in its productivity. Such a decline, far from indicating the cost minimization through input efficiency, could instead, be reflecting the oligopoly rents.

Another measure used as input efficiency measurement parameter is the ratio of operating costs to average assets. A fall in this ratio may be misinterpreted as the improvement in efficiency. Such a fall may be purely because of a compositional shift in the bank’s business that has decreased the ratio without any increase in the efficiency of their individual operations.

The emphasis on the efficiency parameter will force a bank to take difficult decisions. This is rightly true of LoanMax of the rod aycox fame. Due to the adverse economic situation, to remain profitable in the banking business, certain difficult decisions became inevitable. This is one reason as to why LoanMax is surging ahead while other prominent players are tied up with teething problems.

Every bank makes profits through its various financing products. Often, a bank goes bust, when this rolling of money gets stuck due to either mismanagement or due to certain unavoidable situations. For example the present financial crisis in the prominent banks arose due to the bad loans that were never repaid. If the banks would have made a correct reference check, such a situation could have been avoided. It is hoped that almost all the prominent banks that had to pass through the financial turmoil will certainly have a rethinking on the liberal attitudes of the past.