Determinants of Efficiency of Commercial Banks in India After Global Crises

Abstract

This study contributes to the bank efficiency literature by estimating the technical efficiency, pure efficiency, and scale efficiency of banks in four different ownership groups in India from 008-09 to 019-20, utilizing the DEA method and three alternative approaches to choosing inputs and outputs of banks-intermediation approach, value-added approach, and operating approach. It also uses the Tobit estimation procedure to identify the factors determining the variations in the technical efficiency of banks. Results indicate a high degree of inefficiency of several banks during the study period, and there is greater scope for improving their performances. Sizable scale inefficiency exists, and banks are likely to lose sizable output. The results also indicate that banks with a larger capital adequacy ratio, young banks, larger banks, or more profitable banks are more efficient. Foreign banks and nationalized banks are more efficient than private domestic banks. We hope that the findings of this study will be useful to international agencies and other stakeholders in evaluating and improving the performance of Indian banks.