A Nonparametric Analysis to Evaluate Scale of Indian Banking Operations

Abstract

In the present study, Data Envelopment Analysis (DEA) was used to estimate scale efficiency of Indian banks during 2008-2012. The given period was characterized by global financial crisis, rapid regulatory reforms and intense competition among Indian banking sector. The results showed considerable variation in average levels of scale efficiency across various ownership groups of Indian banking system. In general, public and private banks are found to be more scale efficient than foreign banks. There was higher scale efficiency of smaller public, private and foreign banks than larger counterparts in respective groups to believe that small banks had better prospect in the area of scale of operations. The trend of scale efficiency during 2008-2012 across the public, private and foreign banks of India was also examined and the results showed low heterogeneity in scale efficiency of public and private banks after 2008, whereas higher heterogeneity in foreign banks across the study period 2008-2012. The ownership possibly explained the difference across the scale efficiency of banks in India.