Evaluation of Efficiency, Size & Ownership of Commercial Banks in India: A Study on Efficiency and Ownership of Commercial Banks in India

Abstract

This paper attempts to estimate financial performance in terms of profit and cost efficiency levels using frontier analysis based on panel data of 52 domestic banks in India during 2000-2006. The findings show on an average bank is 88 cost efficient and 67 profit efficient in India. Efficiency ratios are comparable with international studies on efficiency of financial institutions. As against the popular belief, no significant difference in mean efficiency of public sector banks and private sector banks is found. Bank size is found to be associated with higher cost efficiency but not profit efficiency. Banks, which are inefficient in risk management, are found to be under performing. Efficiency gains of competition are clearly evident in the study.