Revenue efficiency analysis of scheduled commercial banks in a dynamic environment: Empirical evidence from India

Abstract

Purpose

The paper aims to analyze the revenue efficiency (RE) of Scheduled Commercial Banks in India. The study also determines the nature of Return to Scale (RTS) of banks and thereby identifies the leaders and laggards in the Indian Banking Sector.

Design/methodology/approach

RE of banks is calculated by using the non-parametric approach, namely, data envelopment analysis. Further, the efficiency scores are decomposed into technical and allocative efficiency.

Findings

Public Sector Banks have higher RE as compared to their counterparts in private and foreign sectors. The choice of operating on incorrect scale is identified as the primary reason of inefficiency. It is suggested that banks should expand their business by opening new branches and also try to increase their customer base. Overall, it is seen that trends in RE are somewhat affected by the dynamism in the environment along with the bank-specific factors.

Originality/value

With specific reference to India, less empirical work has been carried out with respect to RE. None of the studies has identified that revenue inefficiency is caused either by mispricing of outputs or giving wrong choice of outputs.

Citation

Bhatia, A. and Mahendru, M. (2015), "Revenue efficiency analysis of scheduled commercial banks in a dynamic environment: Empirical evidence from India", Indian Growth and Development Review, Vol. 8 No. 2, pp. 184-210. https://doi.org/10.1108/IGDR-04-2015-0015