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.

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.

Efficiency and productivity analysis of Indian banking industry using Hicks-Moorsteen approach

2014 ◽  
Vol 63 (1) ◽  
pp. 57-84 ◽  
Author(s):  
Supran Kumar Sharma ◽  
Raina Dalip
Keyword(s):  
Productivity Growth ◽  
Banking Sector ◽  
Banking Industry ◽  
Malmquist Index ◽  
Scale Efficiency ◽  
Data Envelopment ◽  
Productivity Analysis ◽  
Financial Reforms ◽  
Content Type ◽  
Efficiency And Productivity

Purpose – The purpose of this paper is to attempt to measure the performance of the Indian banking sector in terms of efficiency and productivity levels and their determinants during the post-reform period. Design/methodology/approach – The present study is a novel attempt as it has used pooled data for a duration of 15 years (i.e. 1997/1998-2010/2011) from 59 selected banks for estimating the Hicks-Moorsteen (HM) total factor productivity (TFP) index. Findings – Poor technical efficiency has experienced with scale efficiency change exerting dominant factors; whereas relatively better productivity growth has been experienced by the banks with major contributions from technical change components. The study found relatively underestimated efficiency and productivity levels by traditional data envelopment analysis-based Malmquist index. Additionally, the study brings into account the results for external and environmental determining factors contributing to the TFP growth. Originality/value – Using HMTFP indices has helped to eliminate certain drawbacks of data envelopment and provided the more elaborative decomposition of productivity growth along with their components so as to have lucid and multidimensional insights about the performance of the Indian banking industry after the initiation of financial reforms.

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.

scholarly journals Decomposition of efficiency using DEA window analysis

2018 ◽  
Vol 25 (6) ◽  
pp. 1681-1705 ◽  
Author(s):  
Fekri Ali Shawtari ◽  
Milad Abdelnabi Salem ◽  
Izzeldin Bakhit
Keyword(s):  
Influential Factors ◽  
Scale Efficiency ◽  
Data Envelopment ◽  
Islamic Banks ◽  
Content Type ◽  
Window Analysis ◽  
Conventional Banks ◽  
Dea Window Analysis ◽  
Conventional Counterpart ◽  
Conventional And Islamic Banks

Purpose The purpose of this paper is to examine empirically the efficiency types of Islamic and conventional banks. It seeks to show whether the efficiency level of conventional and Islamic banks significantly differs from each other. In addition, it investigates the influential factors on each type of efficiency. Design/methodology/approach The paper utilises the data envelopment analysis in its windows version to estimate the efficiency scores reflecting the time variance and compares between banking models. The paper uses pure technical efficiency (TE) and scale efficiency to achieve the objective of the study. In addition, the panel data technique is adopted to assess the determinants of the efficiency of the banks econometrically. Findings The findings of panel regression initially indicate that the pure TE is higher for conventional banks compared to Islamic banks. However, the Islamic banks are more scale efficient than their conventional counterpart. Macro and micro indicators have different impacts on the both types of efficiency. However, the unique factors that show consistent influence on the efficiency types were loans/finance, non-interest income/finance/liquidity and GDP. Furthermore, the determinants are shaped differently for Islamic and conventional banks when the banking model is controlled for. Originality/value This paper examines the efficiency types using a unique window analysis approach to examine the types of efficiency with a longitudinal set of data from 1996 to 2011.

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.

Perceived competition in agricultural lending: stylized facts and an agenda for future research

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Todd Kuethe ◽  
Chad Fiechter ◽  
David Oppedahl
Keyword(s):  
Commercial Banks ◽  
Bank Lending ◽  
Future Research ◽  
Land Values ◽  
Credit System ◽  
Stylized Facts ◽  
Content Type ◽  
Loan Rate ◽  
The Individual ◽  
Survey Responses

PurposeThis study examines agricultural lending by commercial banks and the competition they face from the Farm Credit System (FCS) and non-traditional lenders, including merchants, dealers and other input suppliers.Design/methodology/approachWe construct a measure of commercial banks' perceived competition with FCS or non-traditional lenders using the individual responses to the Federal Reserve Bank of Chicago's Land Values and Credit Conditions Survey between 1999 and 2019. Through regression analysis of an unbalanced panel of survey responses, we present a number of stylized facts on the relationship between perceived competition and farm loan rate spreads, collateral requirements, loan delinquencies and expected lending volumes.FindingsOur analysis shows that the two sources of competition have very different effects on commercial bank lending terms, loan portfolio riskiness and expected loan volumes. With these results in mind, we offer a number of suggestions for future research.Originality/valueWe leverage the unique characteristics of the Land Values and Credit Conditions Survey to examine the competition with non-traditional lenders that cannot be observed using administrative data.

Efficiency evaluation of Indian oil and gas sector: data envelopment analysis

2019 ◽  
Vol 14 (2) ◽  
pp. 362-378 ◽  
Author(s):  
Vikas Vikas ◽  
Rohit Bansal
Keyword(s):  
Data Envelopment Analysis ◽  
Technical Efficiency ◽  
Capital Investment ◽  
Oil And Gas ◽  
Stock Exchange ◽  
Scale Efficiency ◽  
Data Envelopment ◽  
Content Type ◽  
Indian Economy ◽  
Oil And Gas Sector

Purpose Data envelopment analysis (DEA), a non-parametric technique is used to assess the efficiency of decision-making units which are producing identical set of outputs using identical set of inputs. The purpose of this paper is to find the technical efficiency (TE), pure technical efficiency and scale efficiency (SE) levels of Indian oil and gas sector companies and to provide benchmark targets to the inefficient companies in order to achieve efficiency level. Design/methodology/approach In the present study, a group of 22 oil and gas companies which are listed on the National Stock Exchange for which the data were available for the period 2013–2017 has been considered. DEA has been performed to compare the efficiency levels of all companies. To measure efficiency, three input variables, namely, combined materials consumed and manufacturing expenses, employee benefit expenses and capital investment and two output variables – operating revenues and profit after tax (PAT) have been considered. On the basis of performance for the financial year ending 2017, benchmark targets based on DEA–CCR (Charnes, Cooper and Rhodes) model have been provided to the inefficient companies that should be focused upon by them to attain the efficiency level. The performance of the companies for the past five years has been examined to check the fluctuations in the various efficiency scores of the companies considered in the study over the years. Findings From the results obtained, it is observed that 59 percent, i.e. 13 out of 22 companies are technically efficient. By considering DEA BCC (Banker, Charnes and Cooper) model, 16 companies are observed to be pure technically efficient. In terms of SE, there are 14 such companies. The inefficient units need to improve in terms of input and output variables and for this motive, specified targets are assigned to them. Some of these companies need to upgrade significantly and the managers must take the concern earnestly. The study has also thrown light on the performance of the companies over last five years which shows Oil India Ltd, Gujarat State Petronet Ltd, Petronet LNG Ltd, IGL Ltd, Mahanagar Gas, Chennai Petroleum Corporation Ltd and BPCL Ltd as consistently efficient companies. Research limitations/implications The present study has made an attempt to evaluate the efficiency of Indian oil and gas sector. The results of the study have significant inferences for the policy makers and managers of the companies operating in the sector. The results of the study provide benchmark target level to the companies of Oil and Gas sector which can help the managers of the relatively less efficient companies to focus on the ways to improve efficiency. The improvement in efficiency of a company would not only benefit the shareholders, but also the investors and other stakeholders of the company. Originality/value In the context of Indian economy, very limited number of studies have focused to measure the efficiency of oil and gas sector in the context of Indian economy. The present study aims to provide the latest insight to the efficiency of the companies especially operating in the Indian oil and gas sector. Further, as per our knowledge, this study is distinctive in terms of analyzing the efficiency of Indian oil and gas sector for a period of five years. The longitudinal study of the sector efficiency provides a bird eye view of the average efficiency level and changes in the efficiency levels of the companies over the years.

The relationship between risk, capital and efficiency in Indian banking: Does ownership matter?

2019 ◽  
Vol 11 (2) ◽  
pp. 218-231
Author(s):  
Sanjukta Sarkar ◽  
Rudra Sensarma ◽  
Dipasha Sharma
Keyword(s):  
Public Sector ◽  
Credit Risk ◽  
Large Data ◽  
Foreign Banks ◽  
Risk Capital ◽  
Lower Efficiency ◽  
Data Set ◽  
Content Type ◽  
Balance Sheets ◽  
Indian Banks

Purpose This paper aims to examine the interplay between risk, capital and efficiency of Indian banks and study how their relationship differs across different ownership types. Design/methodology/approach Panel regression techniques are used to analyze a large data set of all Indian scheduled commercial banks operating during the period 2008-2016. Findings The results show that lower efficiency is associated with higher credit risk in the case of public sector and old private sector banks (”bad management hypothesis”). However, higher efficiency leads to higher credit risk in the case of foreign banks (“cost skimping hypothesis”). The authors further find that the more efficient institutions among public sector hold more capital. Finally, they find that the better-capitalized banks among those in the public sector have lower risks on their balance sheets (“moral hazard hypothesis”). Originality/value There is a paucity of papers on the interplay between risk, capital and efficiency of banks in emerging economies. This paper is the first to study the inter-relationship between risk, capital and efficiency of Indian banks across ownership groups using a number of different measures of risk.

scholarly journals Cost efficiency of the Czech and Slovak banking sectors: an application of the data envelopment analysis

2016 ◽  
Author(s):  
Iveta Palecková
Keyword(s):  
Data Envelopment Analysis ◽  
Cost Efficiency ◽  
Commercial Banks ◽  
Banking Sector ◽  
Banking Industry ◽  
Returns To Scale ◽  
Data Envelopment ◽  
Cost Efficient ◽  
The Cost ◽  
Variable Returns To Scale

The aim of the paper is to estimate the cost efficiency of the Czech and Slovak commercial banks within the period 2010-2014. For empirical analysis the Data Envelopment Analysis input-oriented model with variable returns to scale is applied on the data of the commercial banks. The intermediation approach is adopted to define the inputs and outputs. The Czech commercial banks are more cost efficient than Slovak commercial banks. The development of average cost efficiency is similar in the Czech and Slovak banking industry. The most efficient Czech banks are Ceská sporitelna and Sberbank in the Czech banking sector, the most efficient Slovak bank is Privatbanka with 100% efficiency.

Market structure-performance hypothesis in Kenyan banking industry

2015 ◽  
Vol 10 (4) ◽  
pp. 697-710 ◽  
Author(s):  
Solomon W. Giorgis Sahile ◽  
Daniel Kipkirong Tarus ◽  
Thomas Kimeli Cheruiyot
Keyword(s):  
Market Structure ◽  
Market Efficiency ◽  
Market Share ◽  
Commercial Banks ◽  
Banking Sector ◽  
Banking Industry ◽  
Developing Economies ◽  
Market Concentration ◽  
Bank Performance ◽  
Content Type

Purpose – The purpose of this paper is to test market structure-performance hypothesis in banking industry in Kenya. Specifically, the structure-conduct-performance (SCP) and market efficiency hypotheses were examined to determine how market concentration and efficiency affect bank performance in Kenya. Design/methodology/approach – The study used secondary data of 44 commercial banks operating from 2000 to 2009. Three proxies to measure bank performance were used while market concentration and market share were used as proxies for market structure. Market concentration was measured using two concentration measures; the concentration ratio of the four largest banks (CR4) and Herfindahl-Hirschman Index, while market share was used as a proxy for efficiency. The study made use of generalized least square regression method. Findings – The empirical results confirm that market efficiency hypothesis is a predictor of firm performance in the banking sector in Kenya and rejects the traditional SCP hypothesis. Thus, the results support the view that efficient banks maximize profitability. Practical implications – The study provides insights into the role of efficiency in enhancing profitability in commercial banks in Kenya. It has managerial implication that profitable banks ought to be efficient and dispels the notion of collusive behavior as a precursor for profitability. Originality/value – The paper fills an important gap in the extant literature by proving insights into what determines bank profitability in banking sector in Kenya. Although this area is rich in research, little work has been conducted in the developing economies and in particular no study in the knowledge has addressed this critical issue in Kenya.

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