Bank effi ciency measurement using alternative techniques of frontier analysis: evidence from India

Muneesh Kumar and Padmasai Arora
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Muneesh Kumar: Department of Financial Studies, University of Delhi
Padmasai Arora: Department of Commerce, Keshav Mahavidyalaya, University of Delhi

No 1304, Working Papers from Groupe ESC Pau, Research Department

Abstract: Banks need to target enhanced levels of effi ciency in order to survive and grow in the present economic conditions. A quantitative assessment of the effi ciency of banks in an economy proves to be crucial for formulating strategies for effi ciency enhancements. The alternative techniques of effi ciency measurement in banks are distinct in terms of construct and approach and thus may offer different results. The difference in the results may be considerable in the case of banking systems in emerging economies. This paper examines the effi ciency in the Indian banking sector during the post reforms period 1991–1992 to 2006–2007 using two popular Frontier analysis techniques, namely data envelopment analysis (DEA) and stochastic frontier analysis (SFA), as alternative techniques of effi ciency measurement. The paper offers evidence in support of confl icting results provided by the two techniques, though both indicate effi ciency gains in the period of study.

Keywords: Indian banking; effi ciency; stochastic frontier analysis; SFA; data envelopment analysis; DEA; frontier analysis and translog production function; India. (search for similar items in EconPapers)
Pages: 27 pages
Date: 2010-12, Revised 2010-12
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Citations: View citations in EconPapers (2)

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