Productivity Change of Indian Commercial Banks: A Non-Parametric Study

Abstract

With the growth of Indian economy, the volume of transactions of commercial banks has grown manifold. The study attempts to investigate the total factor productivity change of four leading Indian commercial banks using non-parametric data envelopment analysis (DEA) and distance function based Malmquist Productivity Index (MPI) over FY2007 to FY2016. The operating approach (or income-based approach) is adopted for input-output selection, viewing the banks as decision-making units (DMU) transforming a bundle of inputs (costs) to produce a set of outputs (revenues). A DMU is considered efficient which maximizes the revenues without increasing the costs. The results indicate that the annual TFP growth registered by these four banks is 3.3%. While two banks recorded productivity growth, the productivity of two other banks declined during the period. Highest productivity growth was recorded during FY2015 and FY2016. TFP growth is further decomposed to Efficiency change (EFFCH) and Technical change (TECHCH) components to study the catchup by less efficient DMUs.