Does Bancassurance Improve the Efficiency of Banks? Evidence from Indian Banks.

This paper examines whether insurance business helps in improving the efficiency of the banking sector. The previous literature had shown contradictory results regarding the impact of diversification on banks' performance. On the one hand, past studies argued that banks engaging in a variety of insurance selling activities can benefit from economies of scope, ultimately improving both their performance and market value. On the other hand, diversification could lead to the escalation of agency problems existing between corporate insiders and small shareholders, which would ultimately destroy the value of the firm within the market. This study examined the impact of bancassurance on the efficiency of public sector banks and private sector banks in India for the period 2011-2017. Data Envelopment Analysis (DEA) was used to measure the impact of bancassurance on all public sector and private sector banks in India. The results revealed that bancassurance made an impact on the efficiency of the banking sector. An average deviation of 7.28% has been observed between the overall technical efficiency scores without bancassurance income and with bancassurance income. The observed difference supports the positive impact of bancassurance on technical efficiency of the Indian banking sector. [ABSTRACT FROM AUTHOR]