Gaining insights into the efficiency of the Indian banking sector

Abstract

This research paper aims to study the efficiency of around 50 Indian Banks in the period 2009-2014, comparing state banks, nationalized banks, private banks and foreign banks. Banks are key players in, and enablers of, a healthy national financial system, and their efficiency, efficacy and profitability help to pave a country’s economic growth and support its population’s welfare. Previous studies report two opposite trends: on the one hand that public banks exhibit more efficiency than private/foreign banks: and on the other hand that private/foreign banks are more efficient than public ones. This paper uses Data Envelopment Analysis with an intermediation approach and an inputoriented model, to analyse the sample. Two models are developed to account for the classic approach to banking and the new electronic banking model. The main findings are: (a) “foreign” banks appear to be more oriented towards electronic banking for intermediation purposes, (b) “private” banks showed the greatest efficiency in the period 2009-2012 whereas in the period 2013-2014 state banks were the most efficient in terms of the classic intermediation approac