X-Efficiency Revisited: Its Concept and Measurement in Commercial Banking Institutions

The article seeks to measure X-efficiency among India's nationalised commercial banks. It first examines the suitability of existing tools and techniques to measure Leibenstein's concept of X-efficiency. Having identified the weakness of available methodologies, the study proceeds to develop a new one based on two-stage least square method which belongs to the so-called Econometric Frontier Approach (EFA). We claim that this methodology recognises all facers of Leibensrein 's original sense of the term. For India's commercial banks, the major findings are: (1) the variant component of X -efficiency is statistically more significant than ils invariant part; (2) the efficiency of 13 banks have improved and that of the rest 14 have detreriorated during the study period; (3) the variant component of X-efficiency is found as low as 25-40 per cent for 17 banks and 40-50 per cent for nine banks and (4) the overall X -efficiency among the banks are more disappointing, it clusters in the range of 25-37 per cent for all but one.