Title: Technical efficiency and its determinants in the Indian domestic banking industry: an application of DEA and Tobit analysis

Authors: Sunil Kumar, Rachita Gulati

Addresses: Punjab School of Economics, Guru Nanak Dev University, Amritsar-143005, Punjab, India. ' Punjab School of Economics, Guru Nanak Dev University, Amritsar-143005, Punjab, India

Abstract: Using cross-sectional data for 51 banks, this paper not only endeavours to measure the extent of technical efficiency in the Indian domestic banking industry, but also explores the most influential factors explaining its variations across banks. The empirical results show that: only 9 of the 51 banks operating in the financial year 2006-2007 are found to be efficient and, thus, define the efficient frontier of the Indian domestic banking industry; the technical efficiency scores range from 0.505 to 1, with an average of 0.792; de novo private sector banks dominate in the formation of the efficient frontier; managerial inefficiency is the main source of Overall Technical Inefficiency (OTIE) in the Indian domestic banking industry; the efficiency differences between public and private sector banks are not statistically significant; significant differences between large and medium banks appear with regard to Scale Efficiency (SE); exposure to off-balance sheet activities and profitability are the most influential determinants of Overall Technical Efficiency (OTE).

Keywords: data envelopment analysis; DEA; Tobit analysis; Indian domestic banks; returns-to-scale; RTS; finance; India; technical efficiency; managerial inefficiency; off-balance sheet activities; profitability.

DOI: 10.1504/AJFA.2009.026484

American Journal of Finance and Accounting, 2009 Vol.1 No.3, pp.256 - 296

Published online: 17 Jun 2009 *

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