Measurement of Technical Efficiency: A Comparative Study of Private and Foreign Sector Banks in India

By : Simmi Arora , Pooja Sharma

Page No: 301-308

Abstract
Banking sector is one of the most important pillars of the economy which fosters the economic growth and development of the nation. Presently, the contribution of service sector is more than 65 per cent at world level and banking sector contributes very significantly to the growth of service sector. It remains the principal resource for households, small and medium enterprises and also caters to the need of the large scale industries. Indian banking sector predominately ruled by government was liberalized in the early 90s. The competitive forces coupled with the entry of many private sector banks and then foreign sector banks posed a challenge for public sector banks to perform better or at least at par. The study aims to analyse the efficiency of the all private sector banks and foreign banks operating in India and further investigates the difference in the efficiency level among different ownership groups using a DEA approach and other statistical tools. Study finds that there is no significant difference in old and new private sector banks while old private sector banks reported greater efficiency in comparison to foreign sector banks. Further, the relationship between non-performing assets (NPAs) and efficiency indices also reported a low negative correlation as both these sector of banks take greater caution in granting loans and follows a strong recovery mechanism.

Authors :
Simmi Arora : Assistant Professor, University School of Management, Kurukshetra University, Haryana
Pooja Sharma : Research Scholar, University School of Management, Kurukshetra University, Haryana.