A Study of Technical Efficiency of Banks in India
13 Pages Posted: 12 Jun 2009
Date Written: June 10, 2009
Many firms in the service industry face the problem of disparate results in terms of efficiency. This problem is a cause of concern for many big organizations such as banks, hotels, courier companies, and so on. In particular, the last decade has witnessed continuous changes in regulation, technology and competition in the global financial services industry, and Indian banks are no exception. Rising cost-income ratios and declining profitability reflect increased competitive pressure. To assess the stability of the banking system, it is therefore crucial to benchmark the performance of banks operating in India. An efficient banking system contributes in an extensive way to higher economic growth in any country. Thus, studies of banking efficiency are very important for policy makers, industry leaders and many others who are reliant on the banking sector. The present study investigates the technical efficiency of Indian banks, segmented in terms of ownership. For this purpose, the data envelopment analysis (DEA) model was used with five input variables (viz. borrowings, deposits, fixed assets, net worth, and operating expenses) and four output variables (advances & loans, investments, net interest income, and non-interest income), and the efficiency scores were calculated for a sample of forty-nine major banks operating in India.
Keywords: financial services, banking efficiency, control systems, data envelopment analysis
JEL Classification: G21
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