Title: Bank efficiency measurement using alternative techniques of frontier analysis: evidence from India

Authors: Muneesh Kumar, Padmasai Arora

Addresses: Department of Financial Studies, University of Delhi, South Campus, Benito Juarez Road, New Delhi – 110021, India; Groupe Ecole Superieure de Commerce de PAU (ESC PUA), 3, rue St. John-Perse, BP 7412, 64075 PAU Cedex, France. ' Department of Commerce, Keshav Mahavidyalaya, University of Delhi, H4-5 Zone, Pitampura, Delhi – 110034, India

Abstract: Banks need to target enhanced levels of efficiency in order to survive and grow in the present economic conditions. A quantitative assessment of the efficiency of banks in an economy proves to be crucial for formulating strategies for efficiency enhancements. The alternative techniques of efficiency 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 efficiency 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 efficiency measurement. The paper offers evidence in support of conflicting results provided by the two techniques, though both indicate efficiency gains in the period of study.

Keywords: Indian banks; banking; bank efficiency; efficiency measurement; stochastic frontier analysis; SFA; data envelopment analysis; DEA; translog production function; India.

DOI: 10.1504/AAJFA.2010.035194

Afro-Asian Journal of Finance and Accounting, 2010 Vol.2 No.1, pp.40 - 69

Published online: 18 Mar 2013 *

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