An Efficiency Study of Indian Banks

Using DEA we measure the efficiencies of Indian Commercial banks comprising private sector, public sector and foreign hanks. A set of 50 commercial hanks for which data are available is included in our study. Normally, the number of Input/Output variables used in bank efficiency analysis is restricted to two/three in order to have an easy interpretation of a DEA output. In this paper, we have chosen seventeen variables as Input/Output to encompass a variety of factors like "Size and Strength", "Operations", "Earning Quality", "Productivity", "Capital Adequacy" and "Asset Quality" of a bank. We perform a discriminant analysis to identify the statistically significant variables that are very effective in discriminating the two groups, one consisting of efficient hanks and the other composed of inefficient hanks, generated by a DEA analysis. This gives an idea as to on which variables a bank should concentrate in order to achieve a full efficiency.