A study on operational efficiency of public and private sector banks: A DEA Approach

Financial system of a country plays a very crucial role in functioning of economy by allowing transfer of resources from depositors to investors. Efficient intermediation of funds from savers to users enables the productive application of available resources. The greater the efficiency of the financial system in such resource generation and allocation, the higher is its likely contribution to economic growth. In today’s economic scenario, finance forms one of the foundation of economic activity of human beings. Banking institutions bridge the gap between those who have money or savings and those who need it. The study employs non-parametric method, the DEA model to construct a best practice frontier from the observed data and to measure efficiency relative to the constructed frontier. The efficiency of bank is measured in terms of how efficiently they are able to utilize their inputs given their outputs. The study reveals that the operating efficiency of public sector banks and private sector banks in India. The Indian banking sector have more developments in last two decades, still they have to improve their technical efficiency.