Measuring Technical Efficiency of Indian Banking Sector in Post Subprime Crises Scenario: A Non Parametric Frontier Based Approach

Abstract

This study gives a comparative analysis of the technical efficiency of top Indian banks during 2007-2011. This period is characterized by far reaching experience of sub-prime crisis (2008-2009) and its impact on Indian banking sector. Efficiency assessment of Indian banking sector has become highly imperative now a days because of intense competition, changing reforms, and instability in banking environment. This study uses Data Envelopment Analysis (DEA), a non parametric linear programming based technique, for evaluating the relative efficiency of top public, private and foreign banks in India. The present paper, based on empirical analysis, shows that the levels of input and output variables in efficiency measurement have changed significantly during this period and banks have improved their relative efficiency score over the period of time. Results support the fact that after sub-prime crisis, Advances (A) and Investments (I) are getting importance as output variables, while Operating Costs (OC), Fixed Assets (FA) and Capital (C) are considered as important input variables. This study also recommends that Data Envelopment Analysis (DEA) could be a suitable tool for measuring relative efficiency score of Indian banking sector.

Key words: Technical Efficiency, Sub Prime Crisis Period, Non Parametric Approach, Data Envelopment Analysis.