ANALYSIS OF EFFICIENCY IN THE PUBLIC AND PRIVATE BANKS IN INDIA: AN EMPIRICAL ANALYSIS

Abstract

Economic growth and development of any country depend upon a well sound financial system. Indian financial system comprises a set of sub-systems of financial institutions, financial markets, financial instruments and services which help in the formation and dissemination of capital. Indian financial system helps to play a significant role in the economic growth of our country through banking industry. The central bank is the apex bank in banking structure of any country. The Central Bank controls the flow of currency in the economy. It regulates the other banks in the country. Here, the analysis of efficiency of Indian banks is the first step in understanding the banks' performance. This has been the main motivation to choose this topic. The efficiency scores, two groups of banks that is, selected publicly owned and privately owned are measured. Data was downloaded from RBI profile of banks (MS Excel) for the numerical values. The date were scrubbed using MS excel macros and specific algorithms were developed to obtain individual banking efficiencies in the year 2019. The algorithm used for arriving at efficiency scores was Data Envelopment Analysis (DEA). As a result of the calculation, each bank obtained an efficiency score of 1 (efficient) or less than 1 (not efficient). This analysis depends on 2:3 ratios of input and output. That means, here 2 outputs and 3 inputs have been used for efficiency calculation. The outputs used are advances and investments. Inputs used are deposits, borrowings and other liabilities. The DEA analysis helps to find out the most efficient banks in India Once the efficiency scores were obtained, banks were graded into quartiles of efficiency clusters of <0.25, 0.25-0.50, 0.50-0.75 and 0.75. Observations
and analysis were made on the efficiency quartiles obtained by the DEA analysis. KEYWORDS: Data Envelopment Analysis, Technical Efficiency, Decision Making Unit, CRR