An analysis of the technical efficiency of Indian public sector banks through DEA approach

Abstract

The purpose of this paper is to measure and evaluate the technical efficiency of 26 Indian public sector banks from the cross-section data of the financial year 2009-2010 and to provide ranking of efficiency to these banks using two popular data envelopment analysis (DEA) models: CCR and Andersen and Petersen's super-efficiency model. The results reveal that average technical efficiency of entire sample is 86.5% and that only seven banks (23%) are found to be fully efficient. So, there is a scope of efficiency improvement of 19 public sector banks in India. The study has found that, the banks which are using more labour for providing their services are relatively more inefficient. In order to improve the efficiency; most of the inefficient banks should follow the good operating practises of four banks namely Indian Bank, Allahabad Bank, State Bank of India and Corporation Bank. State Bank of India has been observed to be the most efficient bank followed by Indian Bank, Corporation Bank as per super-efficiency score whereas, most inefficient bank is United Bank of India.