Analysis of Technical Efficiency of Indian Banking Sector

An Application of Data Envelopment Analysis

Authors

  • Dipayan Roy

DOI:

https://doi.org/10.20525/ijfbs.v3i1.176

Keywords:

Efficiency, Basel norms, Data Envelopment Analysis, Intermediation Approach

Abstract

The proactively evolved banking regulations in the Indian Banking sector under the authorative directive of the Reserve bank of India (RBI) has often brought about a change in the business strategy, capital structure and operations of the banks in the Indian banking sector. During these events of continuous change and adoption of Basel norms, we analyse the efficiency of the Indian banking sector with using Data Envelopment Analysis across three economic eras andacross the different ownership structures. The determinants of efficiency are selected on the basis of intermediation approach. We also attempt to identify whether the inefficiency arises from managerial incompetence or improper size and resource allocation. From our analysis, we identify the main cause of inefficiency in the Indian Banking sector to be arising out of improper size allocation.

Downloads

Download data is not yet available.

References

Banker, R,. D,. (1984). Estimating most productive scale size using data envelopment analysis. European Journal of Operational Researc., 17, 1, 35-44.

Bauer, P.W.; Berger, A.N.; Ferrier, G.D. and Humphrey, D.B. (1998). Consistency conditions for regulatory analysis of financial institutions: a comparison of frontier efficiency methods. Journal of Economics and Business. 50, 85-114

Benston, G, ,J.(1965). Economies of Scale and Marginal Costs in Banking Operations.National Banking Review2 , 507-49.

Berger, A.,N. and Humphrey, D.,B. (1991). The dominance of inefficiencies over scale and product mix economies in banking.Journal of Monetary Economics.28, 117-148.

Bhattacharyya, A., Lovell, C., &Sahay, P. (1997).The Impact of Liberalization on the Productive Efficiency of Indian Commercial Banks.European Journal of Operational Research, 98(2): 332-345.

Casu, B,.andGirardone,C. (2004). An Analysis of the Relevance of Off-Balance Sheet Items in Explaining Productivity Change in European Banking. Money Macro and Finance (MMF) Research Group Conference 2004 37, Money Macro and Finance Research Group.

Cooper, W.W., Seiford, L.M. & Tone, K. (2007).Data Envelopment Analysis: A Comprehensive Text with Models, Applications, References and DEA-Solver Software (Second Edition). New York: Springer Science + Business Media.

Das, A and Ghosh, S. (2006). Financial Deregulation and Efficiency: An Empirical Analysis of Indian Banks During the Post Reform Period. Review of Financial Economics, 15(3), 193-221

Das, S.K. and Drine, I. (2011). Financial Liberalization and Banking Sector Efficiency in India: A fourier Flexible Functional Form and Stochastic Frontier Approach. International Business and Management, 2(1):42-58

Evanoff, D. D., and. Israilevich, P.R (1991). Productive efficiency in banking, Economic Perspectives. Federal Reserve Bank of Chicago, 11-32. Farrell, M. J. (1957) The Measurement of Productive Efficiency. Journal of the Royal Statistical Society, Series A, 120 (3): 253-290.

Ghosh, S. (2009). Financial Deregulation and Profit Efficiency: A Non-parametric Analysis of Indian Banks. Journal of Economics and Business , 61, 6, 509-528.

Gupta,O.K., Doshit,Y. and Chinnubhai, A.(2008) Dynamics of Productive efficiency of Indian Banks. International Journal of Operations Research 5, 2, 78-90.

Koeva, P.(2003). The Performance of Indian Banks during Liberalization. IMF Working Paper no WP/03/150

Kosak, M. and Zajc, P. (2006).Determinants of bank efficiency differences in the new EU member countries, Financial Stability Report, Expert Papers, May 2006. Ljubljana: Bank of Slovenia, 27-54.

Kumar, S., and Gulati, R., (2008), Evaluation of Technical Efficiency and Ranking of Public Sector Banks in India: An Analysis from Cross-sectional Perspective, International Journal of Productivity and Performance Management, 57,7,540-568

Leibenstein, H,.(1966), Allocative Efficiency vs X-Efficiency.American Economic Review

Molyneux,P., Altunbas, Y., and Gardener, E,P,.M.(1996)."Efficiency in European Banking", Wiley

Ray, S. C. (2004). Data envelopment analysis: Theory and techniques for economics and operations research. Cambridge, UK: Cambridge University Press.

Ray, S. C and Das, A. (2009), Distribution of Cost and Profit Efficiency: Evidence from the Indian Banking, European Journal of Operational Research

Sarkar,J., Sarkar,S., &Bhaumik, S.,K. (1998). Does Ownership Always Matter?—Evidence from the Indian Banking Industry. Journal of Comparative Economics, 26, 262-281

Sathye M (2003). Efficiency of Banks in a Developing Economy: the Case of India. European Journal of Operation Research, 148(3), 662-671

Downloads

Published

2014-01-21

How to Cite

Roy, D. (2014). Analysis of Technical Efficiency of Indian Banking Sector: An Application of Data Envelopment Analysis. International Journal of Finance & Banking Studies (2147-4486), 3(1), 150–160. https://doi.org/10.20525/ijfbs.v3i1.176

Issue

Section

Articles