Annals of the University of Oradea: Economic Science (Jul 2019)
FINANCIAL EFFICIENCY MEASUREMENT OF INDIAN BANKING SYSTEM USING DATA ENVELOPMENT ANALYSIS
Abstract
The main objective of this paper to analyse the efficiency of the selected ten Indian Banks. The efficiency analysis was performed by using of DEA method. DEA (Data Envelopment Analysis) is the optimization method of mathematical programming to generalize the Farrell(1957). Thus DEA become a new tool in operational research for measuring technical efficiency. This examination focused on the measure of the operation efficiency of the Indian banking sector in the period 2010-2016. Indian Banking Sector is contributing to the development of the Indian economy in a significant measure. Financial efficiency measurement in this aspect is very vital. The analysis was made of two ways: constant return to scale (CRS) and variable returns to scale (VRS). In DEA, the use of constant returns to scale models requires the assumption of full proportionality between all inputs and output. The country's leading banks should pay closer attention to the regulations and administrations. The studies also show to tenure the private sector banks is better than the public sector banks during this period as well foreign banks. The results are insightful to the financial policy planner as it identifies priority areas for different banks, which can improve the performance. This paper evaluates the performance of Banking Sectors in India. Being major banks in the country, they deserve better attention by the regulators and the administrators. All the banks are operating in India and are represented in three homogeneous categories as per their size. Out of 10 banks, there are 3 foreign banks, 3 banks are nationalized and 4 private Indian banks. In the variable return scale model the public sector banks state bank of India (SBI), Panjab National Bank (PNB) are performing well, they have good efficiency. Since this study attempts to maximize output, so the output oriented Data Envelopment Analysis is used. The most efficient bank is one that obtains the highest efficiency score.
