Rachita Gulati

Measuring efficiency, effectiveness and performance of Indian public sector banks

Purpose – The purpose of this paper is to appraise the efficiency, effectiveness, and performance of 27 public sector banks (PSBs) operating in India by using a two‐stage performance evaluation model.Design/methodology/approach – Using the cross‐sectional data for the financial year 2006/2007, the technique of data envelopment analysis has been used for computing the efficiency and effectiveness scores for individual PSBs. The overall performance scores have been derived by taking the product of efficiency and effectiveness scores.Findings – The empirical results reveal that high efficiency does not stand for high effectiveness in the Indian PSB industry. A positive and strong correlation between effectiveness and performance measures has been noted. Further, on the efficiency front, State Bank of Travancore appears as an ideal benchmark, while State Bank of Bikaner and Jaipur, and State Bank of Mysore emerge as ideal benchmarks on the effectiveness front.Practical implications – The practical implication...

Evaluation of technical efficiency and ranking of public sector banks in India: An analysis from cross‐sectional perspective

Purpose – The purpose of this paper is to evaluate the extent of technical efficiency in 27 public sector banks operating in India and to provide strict ranking to these banks.Design/methodology/approach – Two popular data envelopment analysis (DEA) models, namely, CCR model and Andersen and Petersens super‐efficiency model, were utilized. The cross‐section data for the financial year 2004/2005 were used for obtaining technical efficiency scores.Findings – The results show that only seven of the 27 banks are found to be efficient and thus, defined the efficient frontier; and technical efficiency scores range from 0.632 to 1, with an average of 0.885. Thus, Indian public sector banks, on an average, waste the inputs to the tune of 11.5 percent. Andhra Bank has been observed to be the most efficient bank followed closely by Corporation Bank. Further, the banks affiliated with SBI group turned out to be more efficient than the nationalized banks. The regression results incisively indicate that the exposure ...

Technical efficiency and its determinants in the Indian domestic banking industry: an application of DEA and Tobit analysis

Using cross-sectional data for 51 banks, this paper not only endeavours to measure the extent of technical efficiency in the Indian domestic banking industry, but also explores the most influential factors explaining its variations across banks. The empirical results show that: only 9 of the 51 banks operating in the financial year 2006-2007 are found to be efficient and, thus, define the efficient frontier of the Indian domestic banking industry; the technical efficiency scores range from 0.505 to 1, with an average of 0.792; de novo private sector banks dominate in the formation of the efficient frontier; managerial inefficiency is the main source of Overall Technical Inefficiency (OTIE) in the Indian domestic banking industry; the efficiency differences between public and private sector banks are not statistically significant; significant differences between large and medium banks appear with regard to Scale Efficiency (SE); exposure to off-balance sheet activities and profitability are the most influential determinants of Overall Technical Efficiency (OTE).

Deregulation and Efficiency of Indian Banks

List of tables List of figures List of abbreviations Preface 1 Introduction 1.1 Background 1.2 Motivation, objectives and significant research questions 1.3 Contribution of the book 1.4 Structure of the book 2 Banking System in India: Developments, Structural Changes and Institutional Framework 2.1 Introduction 2.2 Developments in Indian banking sector 2.2.1 Initial formative phase: Prior to independence 2.2.2 Foundation phase: From 1947 to early 1960s 2.2.3 Expansion phase: From mid 1960s to late1980s 2.2.4 Reforms phase: early 1990s onwards 2.3 Structural changes and transformations in India banking sector 2.3.1 Increased availability of lendable resources 2.3.2 Movements towards market-driven interest rate system 2.3.3 Heightened competition 2.3.4 More exposure to off-balance sheet (OBS) activities 2.3.5 Improvement in asset quality 2.3.6 Penetration of information technology 2.3.7 Consolidation through mergers 2.4 Current structure of Indian banking sector 2.5 Conclusions 3 Measurement of Bank Efficiency: Analytical Methods 3.1 Introduction 3.2 Data envelopment analysis (DEA) 3.2.1 Non-allocation DEA models 3.2.1.1 The CCR model 3.2.1.1.1 CCR-I 3.2.1.1.2 CCR-O 3.2.1.2 The BCC model 3.2.1.2.1 BCC-I 3.2.1.2.2 BCC-O 3.2.1.3 Additive model 3.2.1.4 Multiplicative model 3.2.1.5 Non-radial slack-based measures (SBM) model 3.2.2 Extensions of basic non-allocation DEA models 3.2.2.1 Super-efficiency models 3.2.2.2 Cross-efficiency models 3.2.2.3 Non-discretionary input and output variables models 3.2.2.4 Assurance region models 3.2.3 Allocation DEA models 3.2.3.1 Cost efficiency DEA models 3.2.3.2 Revenue efficiency DEA models 3.2.3.3 Profit efficiency DEA models 3.3 Panel data DEA models 3.3.1 Window analysis 3.3.2 Malmquist productivity index (MPI) 3.3.2.1 A graphical conceptualization 3.3.2.1.1 Output-oriented framework 3.3.2.1.2 Input-oriented framework 3.3.2.2 DEA-based estimation of Malmquist productivity index 3.4 Strengths, limitations, basic requirements and outcomes of DEA 3.4.1 Strengths and limitations 3.4.2 Basic requirements 3.4.3 Outcomes 3.5 Free disposal hull (FDH) analysis 3.6 Stochastic frontier analysis (SFA) 3.6.1 Panel data framework 3.6.1.1 Time-invariant efficiency models 3.6.1.1.1 Fixed-effects model 3.6.1.1.2 Random-effects model 3.6.1.2 Time-variant efficiency models 3.6.2 Stochastic distance functions 3.6.3 Marrying DEA with SFA 3.7 Other parametric approaches 3.7.1 Distribution free approach (DFA) 3.7.2 Thick frontier analysis (TFA) 3.7.3 Recursive thick frontier analysis (RTFA) 3.8 Comparison of DEA and SFA 3.9 Conclusions 4 A Survey of Empirical Literature on Bank Efficiency 4.1 Introduction 4.2 Deregulation and bank efficiency 4.2.1 International experience 4.2.2 Indian experience 4.3 Bank ownership and efficiency 4.3.1 International experience 4.3.2 Indian experience 4.4 Cross-country efficiency comparisons 4.5 Mergers and acquisitions (M&As), and bank efficiency 4.6 Major issues in bank efficiency analyses 4.6.1 Selection of inputs and outputs 4.6.2 Choice of estimation methodology 4.7 Conclusions 5 Relevance of Non-traditional Activities on the Efficiency of Indian Banks 5.1 Introduction 5.2 Non-traditional activities in Indian banking industry 5.3 Non-traditional activities and efficiency of banks: some empirical evidences 5.4 Methodological framework 5.4.1 Cost efficiency and its components: concept and measurement approaches 5.4.2 DEA models 5.5 Data and measurement of input and output variables 5.6 Empirical results 5.6.1 Non-traditional activities and bank efficiency 5.6.2 Non-traditional activities and ranking of individual banks 5.6.3 Non-traditional activities and efficiency of ownership groups 5.6.4 Non-traditional activities and ranking of ownership groups 5.7 Conclusions 6 Financial Deregulation in the Indian Banking Industry: Has it improved cost efficiency? 6.1 Introduction 6.2 Deregulation and cost efficiency: Relevant literature review 6.3 Methodological framework 6.4 Data and measurement of input and output variables 6.5 Empirical results 6.5.1 Estimation strategy 6.5.2 Trends in cost (in)efficiency at industry level 6.5.3 Comparison of efficiency across distinct ownership groups 6.5.4 Comparison of efficiency in domestic and foreign banks 6.5.5 Bank size and efficiency 6.5.6 Returns-to-scale 6.5.7 Factors explaining inter-bank variations in efficiency measures 6.6 Conclusions 7 Sources of Productivity Gains in Indian Banking Industry: Is it Efficiency Improvement or Technological Progress? 7.1 Introduction 7.2 Relevant literature review 7.2.1 Deregulation and productivity change: International experience 7.2.2 Deregulation and productivity change: Indian experience 7.3 Methodological framework 7.4 Database, input-output variables and empirical setting for TFP measurement 7.5 Empirical results 7.5.1 Level of technical efficiency 7.5.2 TFP growth in Indian banking industry 7.5.3 TFP growth across distinct ownership groups 7.5.4 TFP growth in domestic and foreign banks 7.5.5 TFP growth across distinct size classes 7.5.6 Technological innovators 7.5.7 Factors affecting TFP growth 7.6 Conclusions 8 Major conclusions, policy implications and some areas for future research 8.1 Introduction 8.2 Major conclusions 8.3 Policy implications 8.4 Some areas for future research References Index

Analysing banks’ intermediation and operating efficiencies using the two-stage network DEA model: The case of India

Purpose The purpose of this paper is to present a holistic approach for measuring overall bank efficiency and its decomposition in intermediation and operating efficiencies. Design/methodology/approach Recently developed two-stage network data envelopment analysis model by Liang et al. (2008) has been used for obtaining intermediation and operational efficiencies along with overall bank efficiency. The bootstrapped truncated regression algorithm as proposed by Simar and Wilson (2007) has been employed to explore the influential determinants of intermediation and operating efficiencies. Findings The empirical results reveal that the operating inefficiency is the dominant source of overall bank inefficiency in Indian banking sector. Another interesting finding is that public sector banks are more efficient than private banks in the intermediation stage of production process, while private banks are more efficient in the operating stage of production process. Finally, the results of bootstrapped truncated regression show that variations in intermediation efficiency are explained by bank size, liquidity position, directed lending and intermediation cost, while inter-bank differences in operating efficiency are influenced by profitability and income diversification. Practical implications The most significant practical implication that has been derived from the research findings is that at the industry level, overall efficiency enhancement needs improvement both in terms of resource-utilization and income-generating abilities of the banks. However, the relatively easy way to achieve higher bank efficiency is to improve the efficiency of banks in generating incomes from interest and fee-based sources. Originality/value This paper is the first to provide a comprehensive assessment of performance of Indian banks by examining the efficiency of individual banks considering both the intermediation and operating approaches simultaneously.

Trends of cost efficiency in response to financial deregulation

Purpose – The purpose of this paper is to examine the trends of cost efficiency (CE) of Indian banks in response to financial deregulation programme launched in early 1990s. More specifically, the findings of this paper offer empirical testing of the basic underlined hypothesis that the CE of banks will rise in the more liberal and competitive environment. Design/methodology/approach – The study employs input-oriented data envelopment analysis (DEA) models that incorporate the quasi-fixed inputs to compute the cost, technical, and allocative efficiency scores for individual banks. The unbalanced panel data spanning from the financial year 1992-1993 to 2007-2008 are used for obtaining efficiency measures. In addition, the panel data Tobit model has been applied to investigate the bank-specific factors explaining variations in the CE. Findings – The empirical findings pertaining to the trends of efficiency measures suggest that: first, deregulation programme has had a positive impact on the CE of Indian ban...

A Survey of Empirical Literature on Bank Efficiency

This chapter presents a survey of empirical literature on bank efficiency. Four key research areas have been identified where most of the research efforts have been devoted in last two decades. These research areas are (i) impact of financial deregulation on bank efficiency, (ii) bank efficiency across ownership types, (iii) cross-country differences in bank efficiency, and (iv) impact of mergers and acquisitions on bank efficiency. In addition, two prominent research issues in the banking efficiency literature have also been discussed in this chapter. The first issue relates with the selection and specification of inputs and outputs in a study on the subject matter. The second issue is on the selection of appropriate frontier efficiency technique to measure bank efficiency. Regarding the first issue, we note that though both intermediation and production approaches are not perfect to model the production process of banking firms, but the former dominates the latter in the empirical applications because it is better suited to capture the decisions taken to minimize the cost of the financing mix. On the second issue, we note that a bank’s efficiency score can differ completely due to the measurement technique, and there is virtually no consensus on the preferred estimation method of bank efficiency.

Did the global financial crisis alter the competitive conditions in the Indian banking industry

ABSTRACT This article addresses a pertinent research question: Did the global financial crisis alter the competitive conditions in the Indian banking industry? In order to find the answer of this research question, we applied a dynamic version of the non-structural Panzar-Rosse model on a unique unbalanced panel dataset of Indian banks spanning over the period from 1998/99 to 2015/16. The robust estimates of H-statistic computed on the basis of the generalized method of moments estimates of the elasticities of input prices show that (i) Indian banks earned their interest and total revenue under monopolistic competition throughout the whole of the sample period and (ii) the global financial crisis altered the competitive conditions in the banking industry, and market moved closer to perfect competition following the financial crisis, especially when interest-bearing activities were in focus.

Emotional Intelligence: Influencing Smoking Behavior in Young Adults:

The present study examines the influence of emotional intelligence on smoking behavior (SB) patterns among 219 young adults belonging to the age group of 19–27 years pursuing management studies in India. The study is conducted with an aim to understand the relevance and importance of emotions in human behavior. The primary data collected are analyzed by binomial and multinomial logistic regression analyses. The study suggests that emotional intelligence has a significant impact on SB considering sex and age as moderators. It has been observed among the sample that males have higher tendency to smoke than females, and that age has no impact on the SB pattern. For the study, the reference category taken is non-smokers.

Banking System in India: Developments, Structural Changes and Institutional Framework

This chapter provides a history of the Indian banking industry, and discusses the process of transformation of banking industry from a state of high degree of regulation to deregulation and liberalization. It has been noted that from the early 1970s through the late 1980s, the role of market forces in the Indian banking system was almost missing, and excess regulation in terms of high liquidity requirements and state interventions in allocating credit and determining the prices of financial products resulted in serious financial repression. Realizing the presence of the signs of financial repression and to seek an escape from any potential crisis in the banking sector, the Government of India embarked upon a comprehensive banking reforms plan in 1992 with the objective of creating a more diversified, profitable, efficient and resilient banking system. Subsequent to the implementation of the extensive financial liberalization programme implemented in 1992, the banking system of India witnessed visible structural changes and transformations during the past 20 years. Use of the state-of-the-art banking technology, increased availability of lendable resources, heightened competition, a trend towards the market-driven interest rate system, improvement in asset quality, imposition of capital market discipline, drive towards consolidation through mergers, greater exposures of non-traditional activities, etc. are the key structural changes and transformations that have taken place in Indian banking industry during the post-deregulation period. These structural changes transformed the Indian banking system from a weak and crisis prone system to a sound and efficient system, which is resilient to external shocks and able to play its vital role in the development of the economy.