Efficiency Measurement in the Indian Banking Industry: An Application of Data Envelopment Analysis

Abstract

The focus of the present article is to measure the efficiency of banks in India which, of late, has assumed primal importance due to intense competition, greater customer demands and changing banking reforms. For this purpose, the efficiency scores of 42 sample banks were computed for recent years by employing Data Envelopment Analysis. The study finds that public sector banks are relatively more efficient than private-domestic and foreign banks. The study also finds that the overall technical inefficiency in banks is primarily due to the underperformance of management rather than scale inefficiency. As the differences between captured efficiency scores of public, private-domestic and foreign banks are found to be statistically significant, the study concludes with the observation that ownership has an impact on the Indian banking industry as far as technical and pure efficiencies of banks are concerned.