Measurement of Efficiency of Banks in India

Varadi, Vijay Kumar and Mavaluri, Pradeep Kumar and Boppana, Nagarjuna (2006): Measurement of Efficiency of Banks in India.

Abstract

In modern world, performance of banking is more important to stable the economy. In order to see the efficiency of Indian banks we have used four indicators i.e, profitability, productivity, asset quality and financial management for all banks include public, private and foreign banks in India for the period 1999-2000 to 2002-2003. For measuring the efficiency of banks we have adopted DEA (Data Envelopment Analysis) and found that public sector banks are more efficient than other banks operating in India.

• Item Type: MPRA Paper
• Language: English
• Keywords: banking efficiency, productivity, profitability, asset quality and financial management
• Subjects: O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O47 - Empirical Studies of Economic Growth ; Aggregate Productivity ; Cross-Country Output Convergence; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit; G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy ; Financial Risk and Risk Management ; Capital and Ownership Structure ; Value of Firms ; Goodwill; D - Microeconomics > D6 - Welfare Economics > D61 - Allocative Efficiency ; Cost-Benefit Analysis

References

Abhiman Das (1999), “Profitability of Public Sector Banks: A Decomposition Model”, Reserve Bank India Occasional Papers, Vol.20, No.1, September, Pp.55-81.

Abhiman Das (2000), “Efficiency of Public Sector Banks: An application of DEA model”, Prajnan, Vol. XXVIII, No.2, Pp. 119-131.

Abhiman Das, P C Sarkar (1997), “Development of Composite Index of Banking Efficiency: The Indian Case”, Reserve Bank India Occasional Papers, Vol.18, No.4, December, Pp.679-709.

Allen N. Berger, David B. Humphrey (1997), “Efficiency of Financial Institutions: International Survey and Directions for Future Research”, European Journal of Operational Research, Special Issue on “New Approaches in Evaluating the Performance of Financial Institutions”

Angadi V.B, (1983), “Measurement of efficiency in Banking Industry”, Reserve Bank India Occasional Papers, Vol.3,

Arunava Bhattacharyya (1997), C.A.K. Lovell, Pankaj Sahay, “The impact of liberalization on the productive efficiency of Indian commercial banks”, European Journal of Operational Research Vol. 98 , Pp.332-345.

Banker, R.D., Charnes, A. and Cooper, W.W. (1984), “Some Models for EstimatingTechnical and Scale Inefficiencies in Data Envelopment Analysis”, Management Sci. 30,1078-1092.

Charnes A, W. W. Cooper, and E. Rhodes (1978), “Measuring the efficiency of decision-making units”, European Journal of Operations Research, No. 2: 429-44.

Charnes A., W. W. Cooper, A. Y. Lewin, and L. M. Seiford (1994), “Data Envelopment Analysis: Theory, Methodology and Applications”, Kluwer Academic Publishers.

Charnes, W. W. Cooper and Z. M. Huang , D. B. Sun (1990), “Polyhedral Cone-Ratio DEA Models with an illustrative application to large commercial banks”, Journal of Econometrics, Volume 46, Issues 1-2, October-November 1990, Pages 73-91.

Farrell, M.J (1957), “The Measurement of Profit Efficiency”, Journal of the Royal Statistical Society, Series A, CXX, Part 3, 253-290.

Subramanyam. G (1985), “An Approach to Inter-bank and Inter-temporal Productivity Comparisons”, Prajnan.

Subramanyam. G, Swamy S.B (1994), “Production Efficiency Difference between Large and Small Banks”, Artha Vijnana, September, Vol 36, No.3, Pp. 183-193.

G.L. Karkal (1983), “Profit and Profitability in Banking”, Prajnan, Vol. 11, No.1, January-March.

H. David Sherman , Franklin Gold (June 1985), “Bank branch operating efficiency Evaluation with Data Envelopment Analysis”, Journal of Banking & Finance Volume 9, Issue 2 , Pages 297-315.

IBA (Indian Banks Association), 2002-2003 and various years Performance Highlights of Banks, Indian Banks Association, Mumbai. India.

Milind Sathye (2003), “Efficiency of Banks in a Developing Economy: The case of India”, European Journal of Operational Research, Vol.114, Pp. 662-671.

Milind Sathye (2001), “X-efficiency in Australian banking: An empirical investigation”, Available online 6 February 2001.

Mukherjee A, P Nath and M N Pal (2002), “ Perfomance benchmarketing and Starategic Homogeneity of Indian Banks”, International Journal of Bank Marketing, Vol.20, No.3, Pp. 122-139

Narasimhan Committee, 1991. Report of the Committee on the Financial System, Government of India.

Noulas, A.G and K.W. Katkar (1996), “Technical and Scale Efficiency in the Indian Banking Sector”, International Journal of Development Banking”, Vol.14, No.2, Pp.19-27.

Padmanabhan Working Group (1991), Report of the working group to review the existing system of inspection of banks. Reserve Bank of India, Mumbai, India.

Pendharkar Working Group (1982-83), Report of the working group to review the existing system of inspection of banks. Reserve Bank of India, Mumbai, India.

PEP Committee (1977), Report of the productivity, efficiency and profitability, Reserve Bank of India, Mumbai, India.

Rangarajan C (1997), “Banking Sector Reforms : Rationale and Relevance”, SICOM Silver Jubilee Lecture, Reserve Bank of India Bulletin, Vol. 51, January, Pp. 41-51.

Reserve Bank of India, Report on Trend and Progress of Banking in India (various years).

Saha, A., Ravisankar, T.S (1995). Assessing relative strength of banks in managing risk: An Indian evidence, Prajnan, vol. XXIV, No. 4.

Saha, Asish and T.S Ravisankar (2000), “Rating Indian Commercial Banks: A DEA Approach”, European Journal of Operational Research, Vol.124, Pp.187-203.

Sanjay K Hansda (1995), “ Performance Variability of Public Sector Banks: Need for Strategic Planning”, Reserve Bank of India Occasional Papers. Vol.16, No.4, December. Pp. 313-341.

Sathye, M., 2001. X-e.ciency in Australian banking: An empirical investigation”, Journal of Banking and Finance 25, 613–630.

Second Narasimhan Committee (1997), Committee on Banking Sector Reform. Gazette of India - Extraordinary Notification, Part II, Sec 3(ii), Ministry of Finance, Government of India.

Shanmugam K.R and T. Lakshmanasamy (2001), Production Frontier and Efficiency Measures: An analysis of the Banking Sector in India”, Asian –African Journal of Economics and Econometrics, Vol.1, No.2, Pp. 211-228

Subrahmanyam, G (1993), Productivity growth in India’s public sector banks: 1979–89. Journal of Quantitative Economics 9, 209–223.

Sukhmoy Chakravarty Committee (1985),. Report of the committee to review the working of the monetary system. Reserve Bank of India, Mumbai, India.

Sunil Kumar, Satish Verma (2002-03), “Technical Efficiency, Benchmarks and Targets: A case study of Indian Public Sector Banks”, Prajnan, Vol.31, No.4.

Swami S.B and G. Subrahmanyam (1994), “Comparative Performance of Public Sector Banks in India”, Prajnan, Vol.22, No.2, Pp.185-195.

T.T. Ram Mohan, Subhash C. Ray (2004), “comparing Performance of Public and Private Sector Banks: A Revenue Maximization Efficiency Approach”, Economic and Political Weekly, March 20, Pp. 1271-76.

Tapan Sinha, D. Shyam Moses (2004), “Efficiency- Equity Tradeoff for Scheduled Bank Operations Across States”, Paper Presented in IGIDR National Seminar, March 26-29.

V.V. Divatia and T.R. Venkatachalam (1978), “Operational Efficiency and Profitability of Public Sector Banks”, Reserve Bank of India Occasional Papers, Vol.3, No.1, June, Pp.1-16.

Verma committee (1999), “Report of the Working Group on Restructuring of weak public sector banks”, Reserve Bank of India, Mumbai.

Yeh, Quey-Jen, (1996), "The application of data envelopment analysis in conjunction with financial ratios for bank performance evaluation", Journal of the Operational Research Society, Vol. 47, pp 980-988.