Abstract
This study examines the efficiency of the overall Indian banking industry using Data Envelopment Analysis (DEA) and to perform a comparative efficiency analysis of public, private, and foreign banks using six varied forms. Also, providing ranks to the banks based on their efficiency. The study incorporates BCC output-oriented DEA model using a sample of 50 Indian banks (public banks = 17, private banks = 18, foreign banks = 15) for a period ranging from 2009-10 to 2018-19, hence incorporating the after-effects of the financial crisis and demonetization, this study uses panel data from 2009-10 to 2018-19. The results showed that most of the Indian banks fall on the efficient side or are near to full efficiency. However, public banks outperform private and foreign banks in terms of their average efficiency. Results also specify that the performance of banks is sensitive to input-output variables, units under evaluation, and choice of the model. The current study has just focused on the internal factors for analyzing the efficiency of Indian banks; however, certain external factors might also impact the banks’ efficiency.
Highlights
History of banking in India is as old as Vedic civilization where usury, as well as kusidin, has been commonly referred
4.1 Private Sector Banks The study was conducted on 18 private banks, and efficiency scores were calculated based on six sets of Input & Output variables
From the descriptive analysis of statistic of efficiency, it was revealed that private banks were most efficient in Intermediation Approach Based Efficiency (97.35%), followed by Fund Conversion Efficiency (96.99%), Cost- Revenue Efficiency (88.41%), Deposit Mobilization Efficiency (81.56%), Production Approach Based Efficiency (71.54%)
Summary
History of banking in India is as old as Vedic civilization where usury, as well as kusidin (money lender), has been commonly referred. In modern times the banking in India originated in the last decade of the 18th century and has evolved over the years to the present shape. Banks act as a financial intermediary by converting deposits into productive investment, creating new capital, and accelerating economic development. Few significant events such as nationalization of scheduled banks, creation of Statutory liquidity ratio and Cash reserve ratio, entry of private banks, and introduction of income recognition and asset classification norms to determine Non-Performing assets led to greater competition and strengthening of the Indian banking sector. Reserve Bank of India has regulated the banking system from time to time to ensure that banks are resilient to global turmoil
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