Title: Determinants of Indian banks efficiency: a two-stage approach

Authors: A.R. Jayaraman; M.R. Srinivasan

Addresses: Department of Statistics and Information Management, Reserve Bank of India, Mumbai, 400051, India ' Department of Statistics, University of Madras, Chennai, 600 005, India

Abstract: Analysing the performance of banks at periodical intervals assumes importance from the perspective of bankers, investors and regulator. This study seeks to examine the cost, revenue and profit efficiency of Indian banks during 2004 to 2013 using data envelopment analysis (DEA) and identifies the determinants of efficiency using Tobit regression. Results show that the cost and profit efficiency of banks are positively correlated and reveal that if the banks are cost efficient, they are also profit efficient. Further, profit efficiency is the better differentiator of performing and non-performing banks, in Indian context. The main determinants of efficiency of banks under cost, revenue and profit DEA models are size and management of the banks. Contrary to popular belief, the GDP growth has an inverse relationship with efficiency of the banks.

Keywords: bank; data envelopment analysis; DEA; cost efficiency; profit efficiency; Tobit regression; India.

DOI: 10.1504/IJOR.2019.102414

International Journal of Operational Research, 2019 Vol.36 No.2, pp.270 - 291

Received: 12 Jan 2016
Accepted: 12 Nov 2016

Published online: 23 Sep 2019 *

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