EVALUATING THE EFFICIENCY OF INDIAN BANKING INDUSTRY USING DATA ENVELOPE ANALYSIS

The banking sector plays a very crucial role in the economic growth of a country. The efficient banking sector is thus the fundamental requirement for smooth functioning of any economy. In the present study an attempt has been made to assess the efficiency of Indian Banking Sector. Using data envelopment analysis (DEA), the study aims to measure the extent of technical, pure technical and scale efficiencies of the Indian banks across different ownership categories for the period 2011-12. Ten out of the 44 banks selected lie on the efficiency frontier and form the reference set for their peers. The result indicates that contribution of scale inefficiency in overall technical inefficiency has been observed to be smaller than what been observed due to managerial inefficiency (i.e., pure technical inefficiency). Further, it is observed that efficiency scores do not vary much across public sector, private sector and foreign banks. Performance of public sector and private sector banks is almost at par with respect to technical efficiency whereas in the case of foreign banks, there lays scope for improving scale efficiency