Asset Quality Based Ranking of Indian Commercial Banks – A Non-Parametric Approach

Abstract

The present paper tries to make an asset quality based ranking of select (28) Indian commercial banks (20 public sector and eight private sector commercial banks) for the five year period 2000–01 to 2005–06 using Data Envelopment Analysis – a non parametric tool. The paper also compares the observed banks in terms of total factor productivity growth for the aforementioned period. The results obtained from the exercise indicate improvement in mean technical efficiency scores in 2004–05 relative to the previous four years. However, mean technical efficiency showed a declined in the next year. The observed private sector banks exhibited higher mean technical efficiency relative to the observed public sector banks for 2000–01 to 2003–04 (and 2005–06) while the reverse is true for 2004–05. The public sector banks, however, exhibit higher mean scale efficiency relative to the observed private sector banks. In so far as total factor productivity growth is concerned, the observed public sector commercial banks exhibited relatively higher Malmquist TFP growth than the observed private sector banks. However, the commercial banks, across ownership groups, exhibited negative mean total factor productivity growth. The negative growth (in real terms) may be the result of emphasis laid on off balance sheet activities on the part of the commercial banks