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- Title
Are Commercial Banks in India Technically Efficient? A Multiple Outputs-Multiple Inputs Panel Stochastic Ray Frontier Function Estimation.
- Authors
Lakshmanasamy, T.
- Abstract
In recent years, the commercial banking sector in India is in great stress with staggering rates of loan defaults, accumulating non-performing assets, priority lending obligations and high regulation norms. At the same time, as commercial firms, they have to maximise profit in the midst of providing financial services to the public. The banks have to operate to their potential levels and any inefficiency will dent their performance. As potential output levels of banks are not observed directly, this paper uses a frontier function approach to estimate the technical efficiency of commercial banks using the inputs-outputs mix. The multiple inputs-multiple outputs stochastic ray frontier function is estimated for a panel of 47 commercial banks in India for the period 2014-17 and the effects of the factors that determine the level of technical efficiency of banks are also estimated. The ML estimates of ray frontier function show that the mean technical efficiency of Indian scheduled commercial banks is on average 33 percent, with a range for individual banks between 23 and 77 percent. The high technical inefficiency of banks is explained by high non-performing assets, priority sector lending and the age of the banks. Improving regulations, technology and management practices are key to improve technical effciency of scheduled commercial banks in India.
- Subjects
BANKING industry; DEFAULT (Finance); PROFIT maximization
- Publication
Wealth: International Journal of Money, Banking & Finance, 2018, Vol 7, Issue 3, p4
- ISSN
2277-9388
- Publication type
Article