A DEA and Malmquist Index Approach to Measuring Productivity and Efficiency of Banks in India

In this paper, a comparison has been made between the public sector banks and their private and foreign counterparts based on the measures of efficiency and productivity that use quantities of outputs and inputs. Efficiency measures a bank’s performance relative to a benchmark at a given point of time and productivity measures a bank’s performance over a period of time. Both measures are relevant in attempting a comparison between these banks. Data Envelopment Analysis (DEA) and Malmquist Index have been used for comparison. The comparisons have been made over the period 2004-09. The empirical findings confirm that the foreign sector banks have been able to score a high Total Factor Productivity (TFP) followed by private banks mainly because of their high technical efficiency change or the use of advanced technology by them. The public sector banks have performed better than the private and foreign banks in pure efficiency change index, which shows that they are more efficient in their operations and need to invest in technology to compete with the private and foreign banks.