Efficiency of banks in India: a DEA approach

Abstract

An understanding of efficiency of banks is necessary for bankers, analysts and policymakers alike. Since its liberalization in 1990s, Indian banking industry is growing at a rapid rate. The banks have adopted new measures to mitigate risks and state-of-the art technologies to improve efficiency. In this report, we have tried to measure the relative efficiency of the banks using DEA analysis. The analysis was done using various input-output parameters and the results of all the models have been analyzed to rank the banks according to their efficiency. In addition to that, an empirical attempt has been conducted to analyze whether certain operational parameters, financial ratios and external factors like ownership structure and asset size have any structural bearing on the efficiency scores of the Indian banks. In the end, efficiency of Indian banks has been compared with the efficiency of foreign banks.