Are private sector banks really more Efficient than public sector banks? – A comparative analysis using Dea

It has been well established that the development of financial or banking systems stimulates economic growth. Bankers are the distributors and custodians of liquid capital. Banks need to be financially strong for this purpose. The objective of this paper is to measure the technical efficiency of banks in India. The present study covers a period of ten years from March 2009 to March 2018. To initiate the econometric study in terms of data envelopment analysis, the first step is to check isotonicity assumptions. Positive correlations among all the variables satisfy the isotonicity assumptions to run the data envelopment analysis. According to the data envelopment analysis, it has been found that private sector banks, on average, run far more efficiently than public sector banks. Among fourteen banks considered in the present study, five banks are technically efficient under Charnes Cooper Rhodes (CCR) model and eight banks are technically efficient under Banker Charnes Cooper (BCC) model. Besides, the most efficient banks are from the group of private banks. The study also reveals that managerial inefficiency is the main cause of overall technical inefficiency of public sector banks than scale inefficiency. If banks are sick and are not running efficiently, then the whole economy would face challenges that might have great negative outcomes. To reach the level of efficiency, the inefficient banks should either minimize their input level for the given output or maximize their output with the given level of input.
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