Operational Efficiency of Public Sector Banks in India - a Non-Parametric Model

Abstract

Measuring the operational efficiency of banks assumes greater significance in the overall rating of banks. Banks normally use factorial productivity measures such as business per employee and business per branch for measuring operational efficiency. With the radical changes taking place in the economic scenario in general, and in the banking sector in particular, it is time that banks moved beyond the concept of per employee business to a more realistic method of measuring their productivity. The focus of this paper is on the operational efficiency of public sector banks in India, using a non-parametric model, which measures the efficiency as a ratio of output index to an index of input used. The findings reveal that, out of the 27 public sector banks in India, only nine banks have achieved high level of efficiency in its operations with Oriental Bank of Commerce at the top. Furthermore, factors such as size of assets, network of branches and staff strength do not have significant influence over the operational efficiency of the banks.