Efficiency Performance in Indian Banking—Use of Data Envelopment Analysis

Abstract

Performance evaluation of the banking sector in India has assumed primal importance due to intense competition, greater customer demands and changing banking reforms. This study attempts to measure the relative performance of Indian banks over the period 1997–2004 using the output-oriented CRR DEA model. The analysis uses nine input variables and seven output variables. Segmentation of the banking sector in India was done along the following basis: bank assets size, ownership status and years of operation. Overall, the analysis supports the conclusion that foreign owned banks were on average most efficient and that new banks are more efficient that old ones, which are often burdened with old debts. In terms of size, the smaller banks are globally efficient, but large banks are locally efficient. Moreover, this study finds evidence of concentration of efficiency parameters among peer bank groups.