An Analysis of the Efficiency of Private Sector Banks in India

The IUP Journal of Bank Management, Vol. 9, Nos. 1 & 2, pp. 60-82, February & May 2010

Posted: 19 May 2010

See all articles by B. S. Bodla

B. S. Bodla

Guru Jambheshwar University of Science and Technology

Richa Verma

National Institute of Bank Management

Date Written: May 14, 2010

Abstract

This paper aims to examine the efficiency, benchmarks and targets for private sector banks operating in India. Keeping in view the limitations of ratio analysis techniques, production approach of Data Envelopment Analysis (DEA) was applied to judge the efficiency of private sector banks. In this model, banks are considered as service providers, and while interest expenses, non-interest expenses and the Non-Performing Asset (NPA) ratio, i.e., net NPAs to net advances, are considered as input variables, deposits, advances and investments are considered as the output variables. The paper analyzes the efficiency of 29 private sector banks with the dataset ranging from the period 1998-99 to 2005-06.

The results of the study indicate that there is a lot of scope for the private sector banks to improve their efficiency level, as, at the most, only 31.25% private sector banks were found efficient during the entire study period. The results indicate that a majority of private sector banks in India need to take steps to decrease the NPA level and improve their output parameters, such as deposits, advances and investments, because they have failed to acquire full efficiency score in all the years under study.

Suggested Citation

Bodla, B. S. and Verma, Richa, An Analysis of the Efficiency of Private Sector Banks in India (May 14, 2010). The IUP Journal of Bank Management, Vol. 9, Nos. 1 & 2, pp. 60-82, February & May 2010, Available at SSRN: https://ssrn.com/abstract=1607653

B. S. Bodla (Contact Author)

Guru Jambheshwar University of Science and Technology ( email )

hisar, haryana 125001
India

Richa Verma

National Institute of Bank Management ( email )

Kondhwe Khurd, NIBM P.O.
Pune, WY Maharashtra 411048
India

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
879
PlumX Metrics