Non-performing assets and technical efficiency of Indian banks: a meta-frontier analysis

2018 ◽  
Vol 25 (7) ◽  
pp. 2105-2125 ◽  
Author(s):  
Nitin Arora ◽  
Nidhi Grover Arora ◽  
Kritika Kanwar
Keyword(s):  
Technical Efficiency ◽  
Commercial Banks ◽  
Banking Industry ◽  
Efficiency Score ◽  
Commercial Banking ◽  
Foreign Banks ◽  
Undesirable Output ◽  
Content Type ◽  
Frontier Analysis ◽  
Indian Banks

Purpose The issue of mounting non-performing assets (NPAs) in Indian banking industry is serious and attracting attention of academia and policy planners. Thus, the purpose of this paper is to test the hypothesis whether NPAs in Indian commercial banking have reached at alarming state where they start affecting the technical efficiency levels adversely or not. Design/methodology/approach The efficiency score have been computed using case model (model with NPAs as bad/undesirable output) vs control model (model without NPAs as bad/undesirable output) methodology under meta-frontier data envelopment analysis framework. Findings It has been noticed that the effect of NPAs on overall technical efficiency and its various components is insignificant. The comparison of the case models (i.e. model with NPAs as bad output) with the control models (i.e. model without NPAs) reveals insignificant difference in average efficiency scores and rank distribution of commercial banks. The major source of inefficiency is technology gap (i.e. structure, setup and objectives of banking) among public, domestic private and foreign private categories of banks. Practical implications Though NPAs are increasing in Indian banking industry and specifically in Indian public sector banks because of their compulsory lending to priority sector yet the banks have huge scope to extend credit to priority sector as the NPAs have not reached at alarming stage where they start affecting adversely the efficiency performance. Originality/value Given the fact that the banking penetrations, structure and objectives differ significantly across ownership, separate frontiers for each ownership (public, private and foreign banks) category has been used to evaluate the technical efficiency levels of 81 commercial banks operating in India over the period 2005 to 2013.

Measuring the performance of the Indian banking industry: data envelopment window analysis approach

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Shakeb Akhtar ◽  
Mahfooz Alam ◽  
Mohd Shamim Ansari
Keyword(s):  
Commercial Banks ◽  
Banking Industry ◽  
Foreign Banks ◽  
Analysis Approach ◽  
Scale Efficiency ◽  
Data Envelopment ◽  
Content Type ◽  
Window Analysis ◽  
Indian Banks ◽  
The Individual

PurposeThis study aims to empirically evaluate the performance of commercial banks operating in India.Design/methodology/approachThe efficiency of the commercial banks is evaluated using the data envelopment analysis (DEA) approach. We measure the technical, pure technical and scale efficiency of the sampled conventional banks using the input-oriented model. We employed an extended DEA window analysis approach based on a panel sample of 47 banks in the Indian scenario. The period of study is from 2009 to 2018.FindingsThe results obtained from CRS and VRS measures envisage that Indian banks have failed to manage their inputs efficiently and convert them into outputs. It implies that Indian banks do not operate at an optimum level. Moreover, the results show that public banks exhibit superior efficiency scores followed by private and foreign banks. Apart from the aggregate sector level, we also investigate the performance of Indian banks at the individual level for in-depth analysis. The individual bank-level analysis reports that the public sector banks (PSBs) are the most efficient followed by foreign banks, whereas, the least efficient are the private banks.Research limitations/implicationsThe findings of our study have implications for government, financial institutions and policymakers to access the verve and flexibility of the Indian banking system. The government should consider restructuring inefficient banks to enhance overall performance. This can be considered by improvement in managerial efficiency, efficient allocation of scarce resources and appropriate scale of operation. However, the findings of the study should be interpreted in light of the period of study for the banks being operational (as we filter out banks that ceased to exist) in India and empirical methods employed. The results may vary if alternative measures are used.Originality/valueThe present paper investigates the efficiency of the Indian banking sector employing the Data Envelopment Window Analysis (DEWA) technique. To the best of our knowledge, the present study is perhaps the first one to employ the DEWA measure on the Indian banking industry to gauge their performance over time.

Assessing the impact of global financial crisis on the intermediation efficiency of Indian banks in the presence of non-performing loans

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Anju Goswami
Keyword(s):  
Public Sector ◽  
Financial Crisis ◽  
Technical Efficiency ◽  
Global Financial Crisis ◽  
Foreign Banks ◽  
Undesirable Output ◽  
Content Type ◽  
Public Sector Banks ◽  
Indian Banks ◽  
The Impact

PurposeBy incorporating the role of nonperforming loans (NPLs), the study aims to assess the impact of global financial crisis (GFC) on the intermediation efficiency of Indian banks for the period of 1998/99 to 2016/17.Design/methodology/approachTo obtain efficiency level of Indian banks, this study applied sequential data envelopment analysis (DEA) based directional distance function (DDF) approach, which performed simultaneous expansion of desirable output and reduction of undesirable output in the bank's loan production structure. Additionally, using fixed effect regression approach in the panel data framework, this study assesses both the phenomenon of σ- and unconditional β-efficiency convergence in public sector banks (PSBs), private banks (PBs), foreign banks (FBs) and overall scheduled commercial banks (SCBs) during the pre-crisis, crisis and post-crisis years in India.FindingsIrrespective of the bank's production model, the evidence suggests that the accounting NPLs as an undesirable output significantly deteriorating the intermediation technical efficiency levels of Indian banks, especially after the crisis years until the last year of the study period. This reflects that Indian banks failed more to achieve their financial intermediation objective in the post-crisis years as compared to the crisis and pre-crisis years. In-depth, statistical evidence of commercial bank ownership groups reveals that public sector banks exhibit a higher level of efficiency in pursuance of traditional loan-based activity followed by private and foreign banks. The study also found the existence of sigma convergence in technical efficiency levels of Indian banks and ownership groups as well.Originality/valueThis study is perhaps the first one, which present the robust evolution of Indian banks intermediation efficiency by taking into account both endogenous (i.e. NPLs as an undesirable output and equity as a quasi-fixed input in the bank production process) crisis and exogenous (i.e. global financial and economic stress) crises. Moreover, none of the existing studies have conducted sub-period wise analysis to show the apparent occurrence of both convergence properties in technical efficiency, adding novelty in the literature.

Economic slowdown, NPA crisis and productivity behavior of Indian banks

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Anju Goswami ◽  
Rachita Gulati
Keyword(s):  
Production Process ◽  
Global Financial Crisis ◽  
Banking Industry ◽  
Economic Stress ◽  
Productivity Index ◽  
Undesirable Output ◽  
Content Type ◽  
Tfp Growth ◽  
Robust Estimates ◽  
Indian Banks

PurposeThis paper aims to investigate the productivity behavior of Indian banks in the presence of non-performing assets (NPAs) over the period 1999 to 2017. The study examines whether Indian banks withstand the shocks of the global financial crisis (GFC) of 2007–2009 and sustain their total factor productivity (TFP) levels in the post-crisis economic turbulent period or not.Design/methodology/approachThe robust estimates of TFP and its components: efficiency change and technical change are obtained using the state-of-the-art and innovative sequential Malmquist-Luenberger productivity index (SMLPI) approach. The key advantages of this approach are that it explicitly allows the joint production of undesirable output (NPAs in our case) along with desirable inputs and outputs in the production process and precludes the possibility of spurious technical regress.FindingsThe empirical results of the study reveal that the Indian banking system has experienced a (−1) percent TFP regress, contributed solely by efficiency loss during the period under investigation. The GFC has slowed down the growth trajectory of TFP growth in the Indian banking industry. Among ownership groups, the effect of the GFC was pronounced on the public sector banks.Practical implicationsThe practical implication drawn from the study is that the Indian banks have not been able to successfully transmit the use of installed technology in a way to generate early warning signals and mitigate the risk of defaults so as to maximize their productivity gains in the banking industry.Originality/valueThis study is perhaps the first one to understand the productivity dynamics of the Indian banks in response to both endogenous (i.e. NPA crisis) and exogenous (i.e. global financial and economic stress) crises. Moreover, the authors obtain the robust estimates of TFP growth of Indian banks by explicitly accounting for NPAs as an undesirable output and equity as a quasi-fixed input in the bank production process.

scholarly journals A Comparative Analysis of Operational Efficiency between Chinese and Indian Commercial Banks

2018 ◽  
Vol 2 (3) ◽  
pp. 41
Author(s):  
Nan ZHU ◽  
Huajie ZHANG
Keyword(s):  
Comparative Analysis ◽  
Technical Efficiency ◽  
Commercial Banks ◽  
Design Research ◽  
Malmquist Index ◽  
Operational Efficiency ◽  
Efficiency Score ◽  
Foreign Banks ◽  
Financial Industry ◽  
Index Method

Aim:The objective of this paper is to make comparative analysis on operational efficiency between Chinese and Indian commercial banks (CBs). Design / Research methods: Following the previous scholars’ study, two models with different sets of input and output variables have been used to show how efficiency scores vary with change in inputs and outputs. The efficiency scores are measured by using data envelopment analysis (DEA) approach. Conclusions / findings: The mean technical efficiency score of Chinese CBs is always relatively higher than the corresponding score of Indian CBs in 2012-2013, respectively. In terms of technical efficiency and pure technical efficiency, the performance of foreign banks in China is always relatively lower than that of foreign banks in India. Originality / value of the article: While many similar studies have evaluated the performance of banking industries in different countries, very few studies have evaluated the performance of banking sectors between Chinese and Indian economies. The paper would be of interest for OR scholars and practitioners in financial industry. Implications of the research (if applicable): The next step of this study could collect more samples and use Malmquist index method to conduct further study on efficiency, efficiency changing and productivity, in order to conduct further competitive power analysis on both of banking industries of China and India.

scholarly journals Performance of Vietnamese commercial banks in ASEAN Economic Community

2020 ◽  
Vol 164 ◽  
pp. 09001
Author(s):  
Trinh Doan Tuan Linh
Keyword(s):  
Technical Efficiency ◽  
Commercial Banks ◽  
Stochastic Frontier Analysis ◽  
Banking System ◽  
Commercial Banking ◽  
Average Output ◽  
Frontier Analysis ◽  
Average Efficiency ◽  
Asean Countries ◽  
Research Period

In this study, the author assesses and compares the performance of commercial banks in Vietnam and ASEAN countries in the period of 2013-2017 by using parametric approach, using SFA method (Stochastic Frontier Analysis). The results showed that the average efficiency of ASEAN commercial banks in the study period was 0.77, the lowest efficiency was 0.11, the highest efficiency was 0.96. This result also shows that the efficiency of ASEAN commercial banks in the period of 2013 - 2017 is relatively low, with this result if the average output does not change, commercial banks can save as much as possible. 23% of the input. The results also show that the average efficiency of Brunie commercial banks is the highest at 0.87%, ranked second is Thai1and with average technical efficiency of 0.83. Ranked last among the 9 ASEAN commercial banking systems in the research period is Singapore commercial banks with average technical efficiency of 0.72 above are Lao commercial banks with an efficiency of 0.73. Vietnam's commercial banking system with technical efficiency in the research period was 0.75, ranked 6th among 9 ASEAN countries.

Stressed assets, off-balance sheet business activities and performance of Indian banking sector: a DEA double bootstrap approach

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Mohammad Shahid Zaman ◽  
Anup Kumar Bhandari
Keyword(s):  
Technical Efficiency ◽  
Commercial Banks ◽  
Banking Sector ◽  
Balance Sheet ◽  
Capital Adequacy ◽  
Bank Efficiency ◽  
Content Type ◽  
Bootstrap Approach ◽  
Double Bootstrap ◽  
Indian Banks

Purpose This paper examines the technical efficiency (TE) of Indian commercial banks during 1998–2015. Design/methodology/approach This study uses mathematical programming-based data envelopment analysis (DEA) methodology to measure technical efficiency of Indian banks. Further, Simar and Wilson (2007) double bootstrap procedure is applied to examine the determinants of efficiency of the Indian banks, by examining the effects of various bank specific and other contextual variables. Findings The results indicate substantial upward bias in the conventional efficiency estimates of the Indian commercial banks. Needless to note, such upward bias is consistent with the theoretical postulates. The bootstrapped regression results show that increasing capital adequacy ratio is positively associated with bank efficiency. The popular belief that non-performing assets have a dampening effect on performance of banks is validated. Among others, ownership category is observed to be an important determining factor of bank efficiency. Specifically, state-owned banks (SOBs) are relatively lagging behind the foreign banks. Moreover, larger banks are observed to have a significantly higher level of efficiency, therefore, recent official policy initiatives toward consolidation of SOBs are validated. Originality/value As this study uses Simar and Wilson (2007) bootstrap approach, it enables the authors to have an estimate of the extent of bias in the traditional DEA TE scores. It also helps us drawing consistent inferences by rectifying the problem of serial correlation in the conventional second stage regression in this regard.

scholarly journals Decomposition of the technical efficiency of the banking system

2018 ◽  
Vol 11 (1) ◽  
Author(s):  
Sanderson Abel ◽  
Alex Bara ◽  
Pierre Le Roux
Keyword(s):  
Technical Efficiency ◽  
Commercial Banks ◽  
Returns To Scale ◽  
Banking System ◽  
Efficiency Score ◽  
Foreign Banks ◽  
Scale Efficiency ◽  
Data Envelopment ◽  
Analysis Method ◽  
Technical Inefficiency

The study investigated the technical efficiency of the commercial banks in Zimbabwe during the period 2009–2015. The study entailed the decomposition of the technical efficiency into pure technical and scale efficiency to understand the sources of the technical inefficiency in the commercial banks in Zimbabwe. To accomplish the task, the study sampled 11 commercial banks of which 6 are domestic and the other 5 are foreign banks. The study used the data envelopment analysis method. The results of the study revealed that commercial banks in Zimbabwe are technically inefficient with an efficiency score of 82.9%. The average pure technical and scale efficiency scores were 96.6% and 85.6%, respectively. The results imply that technical inefficiency of the Zimbabwean commercial banks is mainly a result of scale inefficiency emanating from decreasing returns to scale. The deduction is that commercial banks in Zimbabwe are operating at below their optimum capacity and hence have scope to increase their operations in order to improve on technical efficiency.

EMERGING TRENDS IN BANKING SECTOR - ITS CHALLENGES AND OPPORTUNITIES

2018 ◽  
Vol 6 (26) ◽  
Author(s):  
Karigoleshwar .
Keyword(s):  
Banking Sector ◽  
Banking Industry ◽  
Banking System ◽  
Major Change ◽  
Commercial Banking ◽  
Foreign Banks ◽  
Emerging Trends ◽  
Reserve Bank ◽  
Challenges And Opportunities ◽  
Multiple Regions

In financial sector the banking industry is the largest player, has also been undergoing a major change. Today the banking industry is stronger and capable of withstanding the pressures of competition. Today, we are having a fairly well developed banking system with different classes of banks – public sector banks, foreign banks, private sector banks – both old and new generation, regional rural banks and co-operative banks with the Reserve Bank of India as the fountain Head of the system. In the banking field, there has been an unprecedented growth and diversification of banking industry has been so stupendous that it has no parallel in the annals of banking anywhere in the world. The banking industry has experienced a series of significant transformations in the last few decades. Among the most important of them is the change in the type of organizations that dominate the landscape. Since the eighties, banks have increased the scope and scale of their activities and several banks have become very large institutions with a presence in multiple regions of the country.' The paper examines the new trends in commercial banking. The present era the cashless transactions, E-cheques, mobile wallets. The paper attempts to present the emerging trends and its challenges that recently emerged in the banking sector with special emphasis on digitization. It will be useful to the academicians, banking and insurance personnel, students and researchers. Common readers also know the latest innovations in banking sector

scholarly journals Efficiency of Commercial Banking in Developing Countries

Mathematics ◽  
2021 ◽  
Vol 9 (14) ◽  
pp. 1597
Author(s):  
Violeta Cvetkoska ◽  
Katerina Fotova Čiković ◽  
Marija Tasheva
Keyword(s):  
Developing Countries ◽  
Commercial Banks ◽  
Feasible Solution ◽  
Banking System ◽  
Efficiency Score ◽  
Commercial Banking ◽  
Real Situation ◽  
Super Efficiency ◽  
Bank Management ◽  
The Stability

The aim of this paper is to evaluate the relative efficiency of commercial banks in three developing countries in Europe (North Macedonia, Serbia, and Croatia) in the period from 2015 to 2019, and to provide targets for improvement for the inefficient banks by using DEA. The variables are selected under the income-based approach. Based on the output-oriented BCC model, unusual results are obtained for a few commercial banks in each country, that is, they are BCC relative efficient, which is contrary to the real situation. In order to identify outliers that can affect the efficiency results, a super-efficiency procedure is applied so that banks with a super-efficiency score higher than 1.2 (outliers) or for which a feasible solution was not found are considered in detail and removed, and then the output-oriented BCC model is rerun. Based on the obtained results, the Macedonian commercial banking system shows the highest efficiency (91.1%), followed by the Croatian (90.9%) and the Serbian (81.9%) banking system. The estimated targets for improvement of the inefficient commercial banks could help their top bank management in better resource allocation and making fact-based and faster decisions by which they can improve the operation of the banks they lead and contribute to the stability of the financial system.

Technical efficiency and its determinants in the Indian textile garments industry

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Abdulla ◽  
Shiv Kumar
Keyword(s):  
Panel Data ◽  
Technical Efficiency ◽  
Textile Industry ◽  
Small And Medium Enterprises ◽  
Stochastic Frontier ◽  
Efficiency Score ◽  
Value Chains ◽  
Small Scale ◽  
Content Type ◽  
Medium Enterprises

Purpose This paper aims to examine technical efficiency and its determinants in Indian textile garments industry in post-agreement on textiles and clothing regime and evaluate the technical efficiency among micro, small and medium enterprises (MSMEs) firms. Design/methodology/approach This study uses unbalanced panel data for the period 2005–2010 to 2015–2016. The stochastic frontier function is used to estimate technical efficiency and its determinants. Findings The results show that the overall ecosystem of textile garments’ value chains could be improved to enhance the technical efficiency thereof. The result also reveals that small-scale firms have the highest technical efficiency scores, and medium-scale firms have the least technical efficiency score among all the categories of MSMEs. Research limitations/implications The textile garments industry needs to define its innovation strategies, as these strategies lead to different results that can be achieved only through the management of resources dedicated to the generation and implementation of innovations. Practical implications This study has shown that to offset India’s cost disadvantage in the international markets, there is a need to develop an ecosystem of textile manufacturing and value chains, eliminate the inverted duty structure (where inputs are taxed at a higher rate than the final product) and switch over from shuttle looms toward shuttle-less looms. This would unleash the potential of textile and garments industry and make it globally competitive and technically efficient. Further, there will be an alignment with the ease of doing business with an appropriate mix of policy, technology, institution, infrastructure, information and services. Originality/value Using frontier production function takes stochastic context into account for the dynamic character of technical efficiency and its components. Most of the past studies have assessed technical efficiency at the aggregate level using three-digit National Industrial Classification (NIC) or four-digit NIC code. An analysis at higher levels of aggregation masks the variation in technical efficiency. This study used five-digit NIC data to measure the firm-specific technical efficiency of the textile industry. According to the authors’ knowledge, this study is the first of its kind in the Indian textile industry using stochastic frontier approach and panel data. Further, it also looks at the contribution of different determinants in technical efficiency to the firms.

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