The Impact of Global Financial Crisis on the Efficiency of Indian Banks: Evaluation with Data Envelopment Analysis

Karan Singh Khati, Shivam Kushwaha and Deep Mukherjee ()
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Karan Singh Khati: IIT Kanpur
Shivam Kushwaha: IIT Kanpur
Deep Mukherjee: IIT Kanpur

A chapter in Risks and Resilience of Emerging Economies, 2023, pp 151-172 from Springer

Abstract: Abstract This study advocates the use of non-radial Data Envelopment Analysis (DEA) in order to evaluate productive efficiency of banks. We present a comparison of non-radial DEA and conventional radial DEA models in the context of Indian banks. It further investigates the impact of the global financial crisis (GFC) of 2007 and 2008 on efficiency of banking sector. Technical efficiency scores related to both radial and non-radial DEA models have been calculated for a three-input three-output technology set, under the variable returns to scale assumption. A balanced panel of 26 public sector banks (PSB) and 19 private banks (PVB) for 13 years (2004–05 to 2016–17) has been utilized for the purpose. Kendal’s Tau-b statistic is used to calculate the rank correlation amongst the TE scores. Second-stage bootstrapped truncated regression is conducted to find the factors affecting TE. Results of DEA indicate a lot of scope for improvement in resource utilization if non-radial efficiency measure is employed. The disaggregation of efficiency reveals that physical capital, labor, and other incomes are main contributors to inefficiency. This insight into the components leading to inefficiency will assist managerial decision-making for performance improvement. The study reveals that the non-radial efficiency has a U-shaped relationship with the size of bank. Further, the GFC has a positive impact on efficiency of PSB but has an adverse effect on the same for PVB.

Keywords: Technical efficiency; Russell measure; Public sector banks; DEA; Global financial crisis; Window analysis (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/978-981-99-4063-9_8

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