Have Domestic Banks Declined in Operating Efficiency for the Decade Ending 2013-14:CIR and DEA Approaches

Abstract

Indian banks are expected to play a key role in the envisaged economic growth of the country and economic leadership of developing economies assumed in the current decade. Banking sector has shown a tremendous growth post economic reforms in 1991. Both Public Sector and Private banks, together comprising of the Domestic banks; have played a very important role in the mobilization of savings, financial services provision and financing of sustainable economic growth. However, there are some consistent problems being faced by domestic banks over the last two decades. As a result the decade ending 2013‒14 has seen these banks facing problems like diminishing profitability and stressed assets. A major reason for this is the suspected diminishing productivity and efficiency of domestic banks over the decade, in spite of business growth and expansion. The study uses both CIR and the non-parametric Data Envelopment Analysis approaches to examine the fact of diminishing productivity and efficiency of domestic banks over the decade. It is further established that the main contributors to the overall decline are the Public Sector banks as compared to the Private Sector Banks.