Evaluating the efficiency of Indian public sector banks

Abstract

The present paper examines the efficiency of public sector banks in India. The public sector banks have been deliberately chosen for the study, given the fact that even in the third decade of liberalisation, the dominance of public sector banks is still obvious in terms of market share, impact on economy, number of branches, general perception of the people and overall contribution to the financial system. At present there are 26 public sector banks in India including six State Bank of India and its associate banks. In this paper, the efficiency of the public sector banks has been examined with the help of data envelopment analysis using CCR and BCC models. The study makes use of intermediation approach of output. The study is based on three inputs namely; number of branches, deposits and operating expenses and two outputs viz. loans and advances and non-interest income. The results of the study indicate that in all, only two banks are relatively efficient on the basis of CCR model, i.e., overall technical efficiency and as per BCC model (pure technical efficiency) nine banks are efficient. Further, it has been found that the reason for inefficiency of the public sector banks in India for the year 2012-2013 is due to scale inefficiency.