We now consider the exogenous variables used in
the second step SFA explanatory regression. After
nationalization, the government and the RBI emphasized
expansion of the banking sector into the suburban
and rural areas. This influenced both the number
and the location of new branches, although the impact
was greater on publicly-owned banks than on
privately-owned banks. The freedom to open
metropolitan branches was typically linked to the
opening of suburban and rural branches. Foreignowned
banks were treated still another way. They
were not required to expand into suburban and rural
areas, but they did face tight restrictions on the
number of metropolitan branches they could open. It
is of interest to examine how this controlled branch
expansion policy influenced the performance of the
three types of bank. Four branch-related variables
included to capture these effects are: