Impact of technology on the financial performance of Indian commercial banks: a clustering based approach

• Published in: Innovation and development Vol. 10; no. 3; pp. 433 - 449
• Main Authors: Shanmugam, K. R., Nigam, Rakesh
• Format: Journal Article
• Language: English
• Published: Routledge 01.09.2020
• Subjects: Indian banks; Kmeans clustering; performance indicators; Technology indicators
• ISSN: 2157-930X; 2157-9318
• DOI: 10.1080/2157930X.2019.1685792

This study empirically analyses the impact of technology on the financial performance of 50 banks in India during a six year period from 2011-12 to 2016-17. It applies the Kmeans algorithm, a popular machine learning method to cluster the banks, and develops a novel geometrical representation called the technology performance square, formed by lines of constant performance and technology to relate banks in different states of technology and performance. It also tracks the movement of banks across the different states during the six year period. Results imply that technology has a positive impact on the performance of only 3-9 banks over the six year period, while the most of the other banks are clustered in the low technology and low performance state, showing no impact of technology on financial performance of these banks. The reason could be that with the passage of time, technology becomes cheaper and almost all the banks acquire technology, and there is not much distinction among the banks when it comes to technology.