Measuring the efficiency of Indian public and private banks using the two-stage network DEA model

Abstract

PurposeThe main objective of this paper is to present a holistic approach for measuring overall bank efficiency and its decomposition in intermediation and profitability efficiencies.Design/methodology/approachTwo-stage network data envelopment analysis (NDEA) model has been used for obtaining intermediation and profitability efficiencies along with overall bank efficiency. Additionally, bootstrap truncated regression has also been adopted to explore the influential predictors of two stages.FindingsA comparative analysis between Indian private-sector and public-sector banks showed that the former is efficient than the latter in profitability efficiency stage. Another interesting finding is that none of the banks is efficient in overall study tenure. Finally, outcomes of bootstrap truncated regression show that differences in intermediation efficiency are explained by firm size, return on asset, market share and ownership while profitability stage is determined by diverse, gross domestic product and ownership.Research limitations/implicationsThis study will guide the Indian banking sector to act on which they are lagging, for the betterment of their overall performances. Finally, parameters like loan waives and disposal income of non-performing assets (NPAs) are not considered because of the unavailability of information in the output measures of NDEA model.Originality/valueThis paper not only provides a detailed performance assessment of Indian banks but also examines banks’ internal efficiency by deposits as an intermediary measure.