Income-Generating Efficiency of Public Sector Banks in India: An Application of Data Envelopment Analysis

Abstract

This paper accomplishes the task of examining the inter-bank differentials in income-generating efficiency across 28 Public Sector Banks (PSBs) operating in India during the financial year 2006-2007. The technique of Data Envelopment Analysis (DEA) has been used to compute the efficiency scores for individual PSBs. The empirical findings reveal that PSBs are generating net-interest and non-interest incomes with high level of efficiency which is reflected by the mean efficiency score of 0.918. The study suggests that for improving their performance, the inefficient PSBs should concentrate more on generating non-interest income from the off-balance sheet activities (i.e., nontraditional activities) rather than interest income from the traditional activities like advancing loans and investments in other earning assets.