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Cost Efficiency of Public Sector Banks in India: an Empirical Study


Affiliations
1 Department of Commerce,Assam University (A Central University), Silchar, India
2 Department of Commerce, Assam University (A Central University), Silchar, India
 

The present paper aims to estimate cost efficiency of twenty five public sector banks in India for the period 2002-03 to 2011-12 with the help of Data Envelopment Analysis (DEA) model.The study reveals that the banks, on an average, could have saved 7.2 per cent of actual cost incurred. Corporation Bank has been found to be the most cost efficient bank,whereas United Bank of India has proved to be most inconsistently cost inefficient bank during the study period. Further, the study has also investigated the influence of select factors on cost efficiency. The study concludes that higher capitalisation, poor asset quality and higher volume of liquid assets adversely affect cost efficiency of the banks. On the other hand, business per employee, off-balance sheet exposure, profitability, size and market competition positively affect cost efficiency of the banks. However, the influence of size and market competition is not statistically significant.

Keywords

DEA, Capital Adequacy, Asset Quality, Liquidity, Off-Balance Sheet Exposure.
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  • Cost Efficiency of Public Sector Banks in India: an Empirical Study

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Authors

Nitashree Burman
Department of Commerce,Assam University (A Central University), Silchar, India
Kingshuk Adhikari
Department of Commerce, Assam University (A Central University), Silchar, India
Nikhil Bhusan Dev
Department of Commerce, Assam University (A Central University), Silchar, India

Abstract


The present paper aims to estimate cost efficiency of twenty five public sector banks in India for the period 2002-03 to 2011-12 with the help of Data Envelopment Analysis (DEA) model.The study reveals that the banks, on an average, could have saved 7.2 per cent of actual cost incurred. Corporation Bank has been found to be the most cost efficient bank,whereas United Bank of India has proved to be most inconsistently cost inefficient bank during the study period. Further, the study has also investigated the influence of select factors on cost efficiency. The study concludes that higher capitalisation, poor asset quality and higher volume of liquid assets adversely affect cost efficiency of the banks. On the other hand, business per employee, off-balance sheet exposure, profitability, size and market competition positively affect cost efficiency of the banks. However, the influence of size and market competition is not statistically significant.

Keywords


DEA, Capital Adequacy, Asset Quality, Liquidity, Off-Balance Sheet Exposure.

References