Operational performance model for banks: a dynamic data envelopment approach
Benchmarking: An International Journal
ISSN: 1463-5771
Article publication date: 30 November 2022
Issue publication date: 1 December 2023
Abstract
Purpose
Operational performance is critical for the banking sector for both managers and other stakeholders as it strongly affects the overall performance of the banking system. Traditional performance measures such as ratio analysis encountered certain shortcomings. At this juncture, data envelopment analysis (DEA) approaches are increasingly applied in bank efficiency studies. However, basic DEA models ignored the interactions between consecutive terms and focused primarily on measuring performance independently for each study period. All this is required to develop an operational performance model that can enable the long-term decision model.
Design/methodology/approach
An attempt has been made to develop a dynamic DEA within a non-radial category to measure interconnection activities considering non-performing loans as an undesirable link. This study uses the Indian banking dataset from 2015 to 2019. The study's research design directs three directions: ‘comparison of the dynamic DEA with the traditional static DEA model, areas of inefficiencies that are investigated for each factor using the factor efficiency index and the robustness results highlighting the performance difference between bank categories.'
Findings
Comparing with static DEA results, the study confirms that the dynamic model best measures long-term operational performance due to the linkage between consecutive terms. The efficiency analysis concludes that the input factor that requires the most improvement is ‘fixed assets' and ‘deposits'. The output factor that needs the most progress is ‘non-interest income'. The robustness of the developed model is proven by ownership categories present within the Indian banking system. At a significance level of 10%, the result of both the separate and dynamic model for privately owned banks is significantly better than that of publicly owned banks.
Originality/value
This paper proposes an operational efficiency model for Indian banks in line with undesirable output. The mean factor efficiency analysis related to non-radial DEA modelling enhances managerial flexibilities in determining improvement initiatives.
Keywords
Citation
Bangarwa, P. and Roy, S. (2023), "Operational performance model for banks: a dynamic data envelopment approach", Benchmarking: An International Journal, Vol. 30 No. 10, pp. 3817-3836. https://doi.org/10.1108/BIJ-08-2021-0498
Publisher
:Emerald Publishing Limited
Copyright © 2022, Emerald Publishing Limited