An Examination of Technical, Pure Technical, and Scale Efficiencies in Indian Public Sector Banks using Data Envelopment Analysis
Keywords:Public Sector banks; Technical efficiency; Pure technical efficiency; Scale efficiency; Data envelopment analysis; Logistic regression analysis
Using data envelopment analysis (DEA), the present study aims to measure the extent of technical, pure technical, and scale efficiencies in 27 public sector banks (PSBs) operating in India in the year 2004/05. The empirical findings reveal that PSBs operate at 88.5 percent level of overall technical efficiency i.e., inputs could be reduced by 11.5 percent without sacrificing output if all banks were efficient as 7 benchmark banks identified by DEA. Further, the contribution of scale inefficiency in overall technical inefficiency has been observed to be smaller than what been observed due to managerial inefficiency (i.e., pure technical inefficiency). The findings pertaining to returns-to-scale in Indian public sector banking industry highlight that the predominant form of scale inefficiency is decreasing returns-toscale. The results of logistic regression analysis provide that the exposure of the banks to off-balance sheet activities (i.e., non-traditional activities) has a strong and positive impact on the overall technical efficiency of banks.