A SIGNIFICANT STUDY OF MEASURING TECHNICAL EFFICIECNY IN BANKS USING DATA ENVELOPMENT ANALYSIS IN INDIA

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1 International Journal of Accounting and Financial Management Research (IJAFMR) ISSN Vol. 3, Issue 1, Mar 2013, TJPRC Pvt. Ltd. A SIGNIFICANT STUDY OF MEASURING TECHNICAL EFFICIECNY IN BANKS USING DATA ENVELOPMENT ANALYSIS IN INDIA SANOBAR ANJUM Prince Mohammad Bin Fahd University, Instrucr, College of Business- Accounting & Finance Department, Dhahran, Al Khobar, Kingdom of Saudi Arabia Rayalaseema University, Research Scholar, Ph. D in Commerce, Kurnool, Andhra Pradesh, India ABSTRACT The following research article discusses the various studies conducted by authors measure the technical efficiency ofdecision Making Units(DMUs). Decision Making Units arebusinesses set up earn profits.decision Making Units can be elaborated as enterprises ranging from publically held companies, Privately owned corporation,, Nonprofit organization, airports etc. This research paper deals with measuring the technical efficiency of in India. Efficiency means measure how well the DMUs are doing given the circumstance & inputs. There are many ways calculate efficiency of DMUs. Data envelopment Analysis technique is the latest methodology benchmark performance of. Data envelopment Analysis is a non-parametric approach used through linear programming decide efficiency of similar enterprises. The following research paper discusses the various studies conducted by authors measure the technical efficiency using Data Envelopment Analysis in India. The research paper lists in chronological order all literary work carried out by Indian authors discussing the title, name of the author, period of study, years of study, input/output used & the findings of the study. KEYWORDS: Data Envelopment Analysis, Bank, Technical Efficiency INTRODUCTION Data Envelopment analysis is a non-parametric method measure efficiency occasionally called frontier analysis. Efficiency can be scale efficiency, technical efficiency, allocative efficiency, economical efficiency etc. DEA is commonly used measure efficiency with the help of combinations of inputs & outputs. Production approach, approach are two approaches which are widely used. Production approach is followed when the Decision making Units are believed be producer of some product. In the context of banks, the production approach entails that the banks produce services cusmers by opening bank account or process their loan requirements etc. Under the approach, banks are treated as facilitars bridging the gap between consumer and invesr. The following research paper looks at studies that have being carried out in the past 15 years and discusstheir major findings. The following table has being drawn get better understanding of the measurement of efficiency in the banking secr in India using Data Envelopment Analysis Technique. All key facrs including title of the study, author s name, type of Bank, period of the study, input/output variables & the major findings have being discussed at length.

2 188 Sanobar Anjum S.N o * Title of the Study Author's Name Year Input Output Major Findings Productive Performance Evaluation of the Banking secr in India using Data Envelopment Analysis. "An Analysis of the Efficiency of Private in India" "Assessing the effect of Ownership on the Efficiency of Indian Domestic." "Data Envelopment Analysis of State and District Cooperative in India: Explorary Results" "Efficiency of Indian Public : An Application of DEA Approach." "The study of Technical Efficiency of in India." "Performance Evaluation of Indian in the Prompt Corrective Action Framework: An Assurance Region approach. Biresh K Sahoo, JatiSengupta, &AnandadeepMan dal B S Bodla&RichaVer mabajan (2010) Sunil Kumar and RachitaGulati (2010) N Ganesan (2009) Gunjan M Sanjeev (2009) Mihir Dash and Christabel Charles (2009) Ram PratapSinha( 2008) 26 Nationalized banks, 29 Indian Private & 26 foreign banks 29 Private 53 ( ) & 51 ( ) 30 state Cooperative & 20 District Central Cooperative 20 Public, 19 Private & 10 Foreign Borrowed Funds, Fixed Assets Production- Expense, Non- Expense & NPA - Physical Capital (Fixed Assets), Loanable Funds ( Deposits plus Borrowings) Production- Membership, Number of Branches, Borrowed Funds NEW APPROACH- Expense, Non- Expense -Borrowings, Fixed Assets, Net worth, and Operating Expense. Branch, Borrowings & Net Worth Performing Loan assets, and Non- and Net- & Non- and & Fee, Commission & Brokerage Advances & Loans, Net & Non- Return Of Assets, Capital Risk weighted Asset Ratio(CRAR ), Performing Advances/Ne t Advances The major findings of this paper were that the technical efficiency for all ownership groups indicates an affirmative gesture about the reform process in the Indian banking secr. Second finding states that the Nationalized banks do not reflect their learning experience in their cost minimizing behaviour due X- inefficiency facrs arising from government ownership. Only 35.25% private secr banks were found in efficient in the entire period. The results indicate that majority of private secr banks in India need decrease the NPA level & improve their output parameters, such as deposits, advances and investment, because they have failed acquire full efficiency score in all the years under their study. 1) De nova private secr banks dominate the formation of efficient frontier of Indian domestic banking industry;(2) The overall technical inefficiency stems primarily from managerial inefficiency rather than scale efficiency; and(3) the study concludes that ownership does not matter in the Indian domestic banking industry The study emphasizes on the performance of SCBs & DCCBs in term of its technical efficient score. The journal does not compare SCBs with DCCBs. The study concludes that the efficiency of the banks has not increased. It was also found that a few banks were better prepared fight competition as compared their peers. The author has chosen input/output with specific objective/policy formulation in mind. The results of the study show that foreign banks were slightly more efficient than public and private, and that there was not much of a difference in the efficiency of public and private banks. The study of the technical efficiency scores across ownership group reveal that the observed private secr banks have higher mean technical efficiency scores compared their public secr counterparts. banks exhibit decreasing return scale for the period under observation.

3 A Significant Study of Measuring Technical Efficiecny in Using Data Envelopment Analysis in India 189 S.N o Title of the Study Author's Name Year Input Output Major Findings "The impact of size and group affiliation on technical efficiency of Indian Public : An Empirical Investigation." Data Envelopment Analysis (DEA) for measuring technical efficiency of." "Cost Efficiency and Bank lending: Some Empirical results." "Productivity Growth & Efficiency in Indian Banking: A comparison of Public, Private and foreign banks." Efficiency of in a developing economy: The case of India." "Efficiency of Public secr banks in India: An application of Data Envelopment Analysis Model." " Rating of Indian : A DEA Approach" Sunil Kumar and RachitaGulati (2008) Gunjan M Sanjeev (2006) Chatterjee and Sinha (2006) Ram Mohan & Ray (2004) SathyeMilind (2003) Abhiman Das (2000) Saha and Ravisankar (2000) 33 Private 38 foreign Scheduled Bank secr banks PSBs -Physical Capital, Loanable funds NEW APPROACH- Expense, Non- Expense Number of Branches, Borrowed Capital Revenue Maximization efficiency approach Deposits & Operating Cost -Financial analysis Expense & Non Expense. Operational- Deposits & Staff Borrowed funds( Deposits & other borrowings), Number of Employees, fixed assets & Equity Branches, Staff, establishment expenditure and nonestablishment expenditure (Excluding interest expenditure) Spread( Netinterest ) & Non- & Fee, Commission & Brokerage Net- Non- &: loan Loans, & other s Financial analysis-net & Non- income. Operational Net Loans & Non- Performing Loan assets, and Non- spread, tal income, interest income, non-interest income & working finds The study showed that the banks affiliated State Bank of India Group are more efficient than the nationalized banks. The relationship between size and technical efficiency indicated that the small banks are more efficient than the larger counterparts The study emphasized that the efficiency of the banks has improved over time and that the foreign banks have outperformed both the Private secr banks and the public secr banks. The study concludes that the Indian banking secr is likely witness greater thrust. The observed private secr commercial banks exhibit higher mean technical and cost efficiency scores than the observed public secr commercial banks irrespective of the output indicar chosen, although the difference is more pronounced in respect of noninterest income PSBs performed significantly better than private secr banks, but not differently from foreign banks. Superior performance of PSBs is be ascribed higher technical efficiency. The study found no significant difference between the efficiency of PSBs and other categories of banks. The mean efficiency score of Indian banks compare well with the world mean efficiency score. The efficiency of private secr commercial bank as a group is padoxically lower than that of public secr banks and foreign banks in India. The major conclusion of this study was that Non-performing assets, poor management and congestion of labour are the main cause of poor performance in PSBs. PSBs have improved their efficiency scores over the study period. The study noted that a few banks such as Corporation Bank, Oriental Bank of Commerce, SBI, Canara Bank, SBH, Bank of Baroda and Dena Bank were found be consistently efficient banks.

4 190 Sanobar Anjum S.N o Title of the Study Author's Name Year Input Output Major Findings "The Impact of Liberalisation on the Productive Efficiency of Indian." Technical, allocative and Scale Efficiency of Public in India." Bhattacharya et al (1997) Abhiman Das(1997) , 1978, 1984, 1990 & 1996 Production Expense, Operating Expense Loanable Funds (Deposits + Borrowings) & Deposits Net & The Publicly owned banks were found be the most efficient, followed by foreign banks and domestic private banks. The authors found temporal improvements in the performance of foreign-owned banks, virtually no trends in the performance of privately owned banks and a temporal decline in the performance of public owned Indian banks. The banks belonging State Bank of India (SBI) group are more efficient than nationalised banks. Main source of inefficiency was technical in nature rather than allocative. However PSBs have improved their allocative efficiency in the post liberalization period. CONCLUSIONS Extensive empirical studies of banking efficiency have been conducted with U.S. and European commercial banks. However, few studies have been carried out investigate banking efficiency in developing countries, especially in South Asian countries. Since more empirical work is needed on banking efficiency in Asian countries, the primary objectiveof this study is evaluate all the technical efficiency of the banking system in the South Asian countries fill the gap of literature in this area. Thus, we can say that the empirical studies in banking efficiency on the Indian commercial banks are minimal.the literature work has being put in chronological order. Overall, the literature of measuring banking efficiency that has been represented here yield useful comparatives and provides information that can lead significant improvement and that can alert banks new business practices, Furthermore, the literature enables us choose convenient inputs and outputs use in further studies. The studies show that most of the technical efficiency has being carried out till the early 2000 s. This leaves scope for much work be carried out gather trends for the later years as well. A major research work can be carried out which includes all the Public, Private secr banks & Foreign banks measure technical efficiency through both the production and intermediation approach. This would help us formulate policies &procedures & prepare best practices for. REFERENCES 1. B S Bodla and RichaVerma Bajaj (2010), An Analysis of the Efficiency of Private in India. The IUP Journal of Bank Management, Vol IX, Nos. 1 & 2, Bhattacharyya A, Lovell C and Sahay P (1997), The Impact of Liberalization on the Productive Efficiency of Indian, European Journal of Operational Research, Vol. 98, No. 2, pp Biresh K Sahoo and AnandadeepMandal (2011), Examining the Performance of in India: Post Transition Period. The IUP Journal of Bank Management, Vol X, No. 2, Chatterjee B and Sinha R P (2006), Cost Efficiency and Bank Lending: Some Empirical Results, the Indian Economic Journal, Vol. 54, No. 1, pp

5 A Significant Study of Measuring Technical Efficiecny in Using Data Envelopment Analysis in India Das Abhiman (1997), Technical, Allocative and Scale Efficiency of Public in India, RBI Occasional Papers, Vol. 18, Nos. 2 and Das Abhiman ( ), Efficiency of Public in India: An Application of Data Envelopment Analysis Model, Prajnan, Vol. 28, No. 2, pp Gunjan M Sanjeev (2006), Data Envelopment Analysis for measuring the technical efficiency of. The journal of Business Perspective, Vol. 10, No.1, January- March Gunjan M Sanjeev (2009), Efficiency of Indian Public banks: An Application of DEA Approach. The IUP Journal of Applied Finance, Vol. 15, No. 11, Mihir Dash and Christabel Charles( 2009), The study of the Technical efficiency of in India. (2009) 10. N Ganesan (2009), Data Envelopment Analysis of State and District Cooperative in India: Explorary Results. The IUP Journal of Bank Management, Vol VIII, Nos. 3 & 4, Ram Mohan T and Ray S Banking: A Comparison of Public, Private and Foreign, Department of (2004), Productivity Growth and Efficiency in Indian Economics, Working Paper No. 2004/27, University of Connecticut, Connecticut. 12. Ram PratapSinha (2008), Performance Evaluation of Indian in the Prompt Corrective Action Framework: An Assurance Region Approach. The Icfai Journal of Financial Risk Management, Vol. V, No. 1, Saha A and Ravisankar T S (2000), Rating of Indian : A DE Approach, European Journal of Operational Research, Vol. 124, No. 1, pp Sathye, M. (2001), Efficiency of in a Developing Economy: The Case of India, Australia: University of Canberra. 15. Sunil Kumar and RachitaGulati (2008), The Impact of size and group affiliation on technical efficiency of Indian Public An Empirical Investigation. The Icfai Journal of Bank Management, Vol. VII, No. 4, Sunil Kumar and RachitaGulati (2010), Assessing the effect of Ownership on the efficiency of Indian Domestic. The IUP Journal of Bank Management, Vol IX, No. 3, 2010.

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