Abhigyan

Open Access Open Access  Restricted Access Subscription Access
Open Access Open Access Open Access  Restricted Access Restricted Access Subscription Access

Efficiency of Private Banks in India–A Critical Inquiry


Affiliations
1 Department of Commerce, Vidyasagar University, West Bengal, India
     

   Subscribe/Renew Journal


The focus of this study is efficiency of fifteen private banks operating in India. The study for 2005-2016 applies the two-input, two-output Data Envelopment Approach (DEA) under the variable returns to scale assumption. The study finds dominance of the three leading banks, namely HDFC Bank, ICICI Bank and Kotak Mahindra Bank. The overall sector shows tremendous resilience during the period with mean efficiency not falling below 90 Percent in any of the years. IndusInd Bank, Karnataka Bank and South Indian Bank are 'poor performers' in the group and have immense scope for improvement. The application of Welch test shows the existence of significant difference in the efficiency score among the three groups of banks (based on their size) which is again confirmed in the pair-wise result obtained through Scheffe test. The conclusive part of the analysis shows lack of σ-convergence of efficiency score during the period.

Keywords

Private Bank, Efficiency, DEA, Welch Test, Scheffe Test.
User
Subscription Login to verify subscription
Notifications
Font Size

  • Altunbas, Y. Carbo, S., Gardener, E.P.M., & Molyneux, P. (2007). Examining the relationships between capital, risk and efficiency in European banking. European Financial Management, 13, 49-70.

  • Aly, H.Y., Grabowski, R., Pasurka, C., & Rangan, N. (1990). Technical, scale and allocative efficiencies in US banking: An empirical investigation, Review of Economics and Statistics, 72, 211-218.

  • Angadi, V. B., & Devraj, V. J. (1983). Productivity and profitability of banks in India. Economic and Political Weekly, 18 (48), 160-170.

  • Angelidis, D., & Lyroudi, K. (2006). Efficiency in the Italian banking industry: Data envelopment analysis and neural networks. Retrieved from http://www. eurojournals.com/finance.htm, accessed on March 10, 2017.

  • Aydin, N., Yalama, A., & Sayim, M. (2009). Banking efficiency in developing economy: Empirical evidence from Turkey. Journal of Money, Investment and Banking, 8, 50-70.

  • Bala, N., & Kumar, S (2011). How efficient are the public sector banks in India? - An empirical investigation. Sri Krishna International Research & Educational Consortium, 1(3), 39-62.

  • Barr, R., Killgo, K., Siems, T., & Zimmel, S. (1999). Evaluating the productive efficiency and performance of U.S. commercial banks. Managerial Finance, 28(8), 3-25.

  • Berger, A. N., Hunter, W., & Timme, S. (1993). The efficiency of financial institutions: A review and preview of research past, present and future. Journal of Banking and Finance, 17, 221-249.

  • Bhattacharya, A. C., Lovell, A.K., & Sahay, P. (1997). The impact of liberalization on the productive efficiency of Indian commercial banks. European Journal of Operational Research, 98, 175- 192.

  • Brissimis, S. N., Delis, M. D., & Tsionas, E. M. (2006). Technical and allocative efficiency in European banking. Working Paper Bank of Greece, 46.

  • Chu, S.F., & Lim, G.H. (1998). Share performance and profit efficiency of banks in an oligopolistic market: Evidence from Singapore. Journal of Multinational Financial Management, 8, 155-168.

  • Das, A. (1999, September). Profitability of public sector banks: A decomposition model. Reserve Bank India, Occasional Papers, 20(1), 55-81.

  • Debasiah, S S. (2006). Efficiency performance in Indian banking –Use of data envelopment analysis. Global Business Review,7(2), 325 –333.

  • Favero, C.A., & Papi, L. (1995). Technical efficiency and scale efficiency in the Italian banking sector: A non–parametric approach. Applied Economics, 27, 385–395.

  • Gayval, B.K., & Bajaj, V.H. (2015). Measuring efficiency of Indian banks: A DEA-Stochastic frontier analysis. International Journal of Innovative Research in Science, Engineering and Technology, 4(12), 12602-12608.

  • Ghosh, A., Dey, M., Bandyopadhyay, G., & Guha, B. (2014, September). Technical efficiency measurement of Indian banking companies: An investigation using DEA and Super Efficiency Model, Lecture Notes on Information Theory, 2(3), 273-278.

  • Gourlay, A., Ravishankar, G., & Jones, T. (2006). Non-Parametric analysis of efficiency gains from bankmergers in India. Working Paper 17, Loughborough University, 1-39.

  • Grigorian, D., & Manole, V. (2002). Determinants of commercial bank performance in transition: An application of Data Envelopment Analysis. Working Paper 2850, The World Bank.

  • Gupta, O.K., Doshit, Y., & Chinubhai, A. (2008). Dynamics of productive efficiency of Indian banks. International Journal of Operations Research, 5(2), 78-90.

  • Hansda, S.K. (1995, December). Performance variability of public sector banks: Need for strategic planning. Reserve Bank of India, Occasional Papers. 16(4), 313-341.

  • Hasan, I., & Marton, K. (2003). Development and efficiency of the banking sector in a transitional economy. Journal of Banking and Finance, 27(12), 2249−2271.

  • Kaparakis, Emmanuel I, Miller, S.M., & Athanasios G. Noulas (1994). Short-run cost inefficiency of commercial banks: A flexible Stochastic Frontier Approach. Journal of Money, Credit and Banking, 26(4), 875-893.

  • Karim, Abdul Mohd Zaini. (2001). Comparative bank efficiency across select ASEAN countries. ASEAN Economic Bulletin. Institute of Southeast Asian Studies, 289-304.

  • Kumar, S., & Gulati, R. (2008). An examination of technical, pure technical, and scale efficiencies in Indian public sector banks using Data Envelopment Analysis. Eurasian Journal of Business and Economics, 1 (2), 33-69.

  • Kumbhakar, S., & Sarkar, S. (2002). Deregulation, ownership, and productivity growth in the banking industry: Evidence from India. Journal of Money, Credit and Banking, 35, 403-424

  • Lang, G., & Welzel, P. (1996). Efficiency and technical progress in banking: Empirical results for a panel of German cooperative banks. Journal of Banking & Finance, 20 (6), 1003-1023.

  • Mertens, A., & Urga, G. (2001). Efficiency, scale and scope economies in the Ukrainian banking sector in 1998. Emerging Markets Review, 3(2), 292–308.

  • Mohan, T.T., & Ray, S.C. (2004, March). Comparing performance of public and private sector banks: A revenue maximization efficiency approach. Economic and Political Weekly, 1271-76.

  • Mukherjee, A., Nath, P., & Pal, M.N. (2002). Performance bench marketing and strategic homogeneity of Indian banks. International Journal of Bank Marketing, 20(3), 122-139.

  • Noulas, A.G., & Katkar, K.W. (1996). Technical and scale efficiency in the Indian banking sector. International Journal of Development Banking, 14(2), 19-27.

  • Ray, S.C. (2007). Are some Indian banks too large? An examination of size efficiency in Indian banking. Journal of Productivity Analysis, 27, 41–56.

  • Rezvanian, R., & Mehdian, S. (2002). An examination of cost structure and production performance of commercial banks in Singapore. Journal of Banking and Finance, 26(1), 79-98.

  • Saha, A., & Ravisankar, T.S (1995). Assessing relative strength of banks in managing risk: An Indian evidence, Prajnan, 24 (4). 445-460.

  • Sala-i-Martin., & Xavier, X. (1996). Regional cohesion: Evidence and theories of regional growth and convergence. European Economic Review, 40, 1325–52.

  • Sanjeev, G.M. (2006). Data envelopment analysis for measuring technical efficiency of banks. Vision: The Journal of Business Perspective. 10(1), 13-27.

  • Sarkar, P. C., & Das, A. (1997, December). Development of composite index of banking efficiency: The Indian case. RBI Occasional Papers, 18(4), 679-709.

  • Sarkis, J., & Weinrach, J. (2001). Using data envelopment analysis to evaluate environmentally conscious waste treatment technology. Journal of Cleaner Production, 9(5), 417-427.

  • Sathye, M. (2003). Efficiency of banks in a developing economy: The case of India. European Journal of Operational Research, 148(3), 662–671

  • Sathye, M. (2005). Privatization, performance and efficiency: A study of Indian banks. Vikalpa, 30(1), 7-16.

  • Sealey, C., & Lindley, J. T. (1977). Inputs, outputs and a theory of production and cost at depository financial institution. Journal of Finance, 32, 1251-1266.

  • Shanmugam, K.R., & Lakshmanasamy, T. (2001). Production frontier and efficiency measures: An analysis of the Banking Sector in India. Asian –African Journal of Economics and Econometrics, 1(2), 211- 228.

  • Sherman. H.D., & Gold, F. (1985). Bank branch operating efficiency evaluation with data envelopment analysis. Journal of Banking & Finance, 9 (2), 297-315.

  • Sinha, T., & Moses, D.S. (2004). Efficiency- Equity Tradeoff for Scheduled Bank Operations Across States. Paper Presented in IGIDR National Seminar, March 26-29.

  • Sinha, A., & Khan, T.L. (2014, January-June). Impact of global financial crisis on the efficiency of Indian banking sector: An assessment. IIMS Journal of Management Science, IIM, Shillong, 67-80.

  • Smith, P.C. (1997). Data Envelopment Analysis Theory, Methodology and Applications – Charnes A. , Cooper W. W. , Lewin A. Y. , Seiford L. M. – Book Review. Journal of the Operational Research Society, 48 (3). 332-333.

  • Subrahmanyam, G. (1993). Productivity growth in India's public sector banks: 1979-89. Journal of Quantitative Economics, 9, 209-223.

  • Subramanyam, G., & Swamy, S.B (1994, September). Production efficiency difference between large and small banks. Artha Vijnana, 36 (3), 183-193.

  • Sufian, F. (2007). The efficiency of Islamic banking industry in Malaysia: Foreign vs domestic banks, Humanomics, 23(3), 174-192.

  • Swami, S.B., & Subrahmanyam, G. (1994). Comparative Performance of Public Sector Banks in India. Prajnan, 22 (2), 185-195.

  • Tahir, I., Abu Bakar, N. M., & Haron, S. (2009). Estimating technical and scale efficiency of Malaysian commercial banks: A non-parametric approach. International Review of Business Research Papers, 5 (1), 113 -123.

  • Thanassoulis, E. (1993). A comparison of regression-analysis and data envelopment analysis as alternative methods for performance assessments. JORS, 4, 1129-1144.

  • Usman, M., Wang, Z., Mahmood, F., & Shahid, H. (2010). Scale efficiency in banking sector of Pakistan. International Journal of Business and Management, 5(4), 104-116.

  • Yang, Z. (2009). Bank branch operating efficiency: A DEA approach, Proceedings of the International Multiconference of Engineers and Computer Scientists, II, March, Hong Kong.

  • Yildirim, S., & Philippatos, G. (2007). Efficiency of banks: Recent evidence from the transition economies of Europe 1993–2000. European Journal of Finance, 13, 123–143.


Abstract Views: 357

PDF Views: 1




  • Efficiency of Private Banks in India–A Critical Inquiry

Abstract Views: 357  |  PDF Views: 1

Authors

Abhijit Sinha
Department of Commerce, Vidyasagar University, West Bengal, India

Abstract


The focus of this study is efficiency of fifteen private banks operating in India. The study for 2005-2016 applies the two-input, two-output Data Envelopment Approach (DEA) under the variable returns to scale assumption. The study finds dominance of the three leading banks, namely HDFC Bank, ICICI Bank and Kotak Mahindra Bank. The overall sector shows tremendous resilience during the period with mean efficiency not falling below 90 Percent in any of the years. IndusInd Bank, Karnataka Bank and South Indian Bank are 'poor performers' in the group and have immense scope for improvement. The application of Welch test shows the existence of significant difference in the efficiency score among the three groups of banks (based on their size) which is again confirmed in the pair-wise result obtained through Scheffe test. The conclusive part of the analysis shows lack of σ-convergence of efficiency score during the period.

Keywords


Private Bank, Efficiency, DEA, Welch Test, Scheffe Test.

References