A Study of Control-Efficiency of Banks in India

Abstract

Many firms in the service industry face the problem of disparate results in terms of efficiency. This problem is a cause of concern for many big organizations such as banks, hotels, courier companies, and so on. In particular, the last decade has witnessed continuous changes in regulation, technology and competition in the global financial services industry, and Indian banks are no exception. Rising cost-income ratios and declining profitability reflect increased competitive pressure. To assess the stability of the banking system, it is therefore crucial to benchmark the performance of banks operating in India. An efficient banking system contributes in an extensive way to higher economic growth in any country. Thus, studies of banking efficiency are very important for policy makers, industry leaders and many others who are reliant on the banking sector. The present study investigates the efficiency of Indian banks from the viewpoint of control systems, segmented in terms of ownership. For this purpose, a variation of the data envelopment analysis (DEA) model was formulated using control variables and performance variables, and the efficiency scores were calculated for a sample of forty-two major banks operating in India. The results of the analysis present a radically different picture of Indian banking efficiency, in contrast to that presented in the established banking efficiency literature.