Analysis of relative productivity growth of selected public and private sector banks in India: A comparative study

Abstract

This study attempts to measure the total factor productivity and the changes in its components of the selected public and private sector banks in India using Data Envelopment Analysis (DEA) during the period covering 2004–05 to 2015–16. In this study the input vector includes interest cost and operating cost and output vector includes interest income and non-interest income. We have measured the productivity growth and its components from a time series dataset obtained from RBI database. DEA method is used to measure Malmquist index of total factor productivity for a sample of top 20 commercial banks considering them within the two specified groups and among all the selected commercial banks’ performances comparisons have been carried out. A decomposition of Total Factor Productivity (TFP) measure is done to establish the source of changes in factor productivity. In performance measurement change in technical efficiency, technological change, change in pure technical efficiency, change in scale efficiency and change in total factor productivity indices are calculated based on Malmquist total factor productivity index method. Indices provide us the opportunity to compare the performance of selected public and private sector banks individually and group wise. While we consider all the selected banks taken together, the results found that there is no significant TFP growth during the sample period except in the year 2009–10. In terms of mean TFP growth private sector banks perform better than public sector banks, although in both cases negative growth is found. In terms of mean technical efficiency a negative growth is found in case of selected public sector banks. To enhance the productivity growth, inefficient banks should improve their technical efficiency, accept modern technological innovation, optimum utilisation of resources as well as government should minimise restrictions on banking activities.