An Empirical Study on Measurement of Efficiency of Selected Banks in India

Objective: The study is to examine the efficiency of the selected banks in India.

Methods/Statistical Analysis: The requisite data for DEA analysis are on deposits, borrowings, payment to employees, other operating expenses, total advances, investments and net interest margin. All these data have been collected for each of the individual sample banks as well as for the Nationalized Banks, State Bank of India and its Associates, Private Banks and Foreign Banks as a whole for a period of 15 years i.e. from 2000-01 to 2014-15. The sources of these data are (i) Statistical Tables Relating to Banks in India, and (ii) Report on Trend and progress of Banking in India. In this study, an attempt has been made to measure the efficiency of the banks group-wise and individually for the years 2000-01 to 2014-15 through Data Envelopment Analysis (DEA) by considering the output maximization principle. In the output maximization principle the banks are required to maximize their output bundle with the help of the given input bundle and then mean technical efficiencies have been computed for all the selected banks during the study period. In our study, those banks are categorized as efficient banks whose technical efficiency score is 100%. If efficiency score varies from 80% to less than 100%, the bank concerned is taken as moderately efficient. We have identified a bank as inefficient if its technical score is less than 80%.

Findings: The Foreign Banks as a group is the most efficient ones among the different banking groups whereas the group of State Bank of India and its Associates is found to be in the moderately efficient category.Among the sample PSBs, State Bank of India and Punjab National Bank have been moderately efficient maximum number of times during the study period. UCO Bank and Allahabad Bank have turned out to be the most inefficient ones among the sample PSBs.Bank of Rajasthan is found to be a moderately efficient bank, whereas Dhanalakshmi Bank has turned out to be an efficient. Among the sample private banks, therefore, Bank of Rajasthan has relatively turned out to be the most efficient one.All the foreign banks taken in the sample are efficient in comparison to the other sample public sector and private sector banks as established by their computed efficiency results. Again, among the sample foreign banks ABN Amro Bank, Standard Chartered Bank. Hong Kong and Shanghai Bank have been efficient for maximum number of times during the study period.

Application/Improvements: It may be said that the fulfillment of social objectives thrust on the PSBs, may be the ischolar_main cause of inefficiency of the PSBs. They have met the requirements of priority sector lending along with the opening up of rural branches and have been the bank for the Indian masses. All these may be the ischolar_main cause of inefficiency of the PSBs which needs further intensive study in order to revive them.