Efficiency ranking method using SFA and TOPSIS (ERM-ST): case of Indian banks

Abstract

Purpose The purpose of this paper is to propose a performance evaluation framework using an integrated approach of stochastic frontier analysis (SFA) and technique of order preference with similarity to ideal solution (TOPSIS) called efficiency ranking method using SFA and TOPSIS (ERM-ST) specifically in the banking sector where service excellence is of prime importance for business growth. Design/methodology/approach The proposed approach ERM-ST measures the performance of a DMU in the SFA framework by considering multiple outputs and multiple inputs. It is a non-parametric tool which does not need any prior model assumptions which enhances its applicability in real-life business scenarios. Moreover, the efficiency score obtained using the proposed model ERM-ST lies between 0 and 1, unlike in case of super efficiency data envelopment analysis (DEA) which may go well above 1. Findings The proposed framework is evaluated for its applicability using two various data sets and is further used to evaluate the performance of a group of 26 public sector banks in India. The results obtained by the proposed method ERM-ST are compared with those obtained by super efficiency DEA using Friedman’s test. Originality/value The proposed approach ERM-ST is developed to evaluate the performance of a service unit with multiple outputs and multiple inputs in the SFA framework.