Efficiency Analysis of Commercial Banks in India: An Application of Data Envelopment Analysis

Mihir Dash*, Vishnopriya Babu**
* Professor of Quantitative Methods, School of Business, Alliance University, Bangalore, India.
** Former Student in Finance, School of Business, Alliance University, Bangalore, India.
DOI : https://doi.org/10.26634/jmgt.12.3.13879

Abstract

The efficiency of Indian banks has emerged as a key issue in recent years. This study analyses the technical efficiency of banks in India with respect to different input and output factors. The data for the study is collected from the annual reports of a sample of eighteen public sector banks and thirteen private sector banks, for the period of 2007-12. The analysis is based on the non-parametric Data Envelopment Analysis (DEA) using the intermediation approach. The inputs considered were Capital, Reserves, Deposits, and Interest Expended, while the outputs considered were Investments, Advances, Interest Income, and Other Income.

The results of the study indicate that public sector banks were significantly more efficient than the private sector banks in the initial year 2007-08 of the study period, and were consistently more efficient than private sector banks throughout the study period, except for the year 2010-11. The results of the study also indicate that private sector banks have worsened in efficiency with respect to interest expended over the study period, while public sector banks have worsened in efficiency with respect to other income over the study period. Thus, the private sector banks must take steps to control their interest expenditure whilst maintaining their outputs, while the public sector banks must take steps to increase their other (noninterest) income whilst controlling their inputs.

Keywords

Indian Banking System, Public Sector, Private Sector, Technical Efficiency, Data Envelopment Analysis, Intermediation Approach.

How to Cite this Article?

Dash, M., and Babu, V. (2018). Efficiency Analysis of Commercial Banks in India: An Application of Data Envelopment Analysis. i-manager’s Journal on Management, 12(3), 1-10. https://doi.org/10.26634/jmgt.12.3.13879 https://doi.org/10.26634/jmgt.12.3.13879

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