Efficiency Assessment of Indian Commercial Banks: A Meta-Frontier Approach

Abstract

The study examines the efficiency of the Indian Commercial Banks in the backdrop of undesirable Non-Performing Assets. The study applies Meta-Frontier approach for assessing the efficiency of banks in heterogeneous Indian banking groups, such as Indian PSU Banks, Domestic Private Banks and Foreign Banks, from managerial point of view. The study reveals that, the issue of Non-Performing Assets which is considered as alarming in case of the Indian banking sector, has not been efficiently and properly addressed by the Indian PSU banks and Domestic Private Banks. None of the Indian PSU banks is able to position as an efficient frontier in the Meta frontier matrix. Wilcoxon matched pairs signed ranks test confirms that only the Indian foreign banks are serious in managing their NPAs effectively. Mann- Whitney independent sample test also confirms that there is a significant difference in Meta efficiency scores and technological gap inefficiency scores of Foreign Banks compared to the PSU and Indian Domestic Private Banks. The Indian foreign banks outperform PSU and Domestic private banks in all respects, which may be owing to their advanced technology, global focus and global experience in banking operations.

Keywords: NPA, Non-Performing Asset, Bank, Meta-frontier Approach

JEL Classification: G21, G28