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Analysing banks’ intermediation and operating efficiencies using the two-stage network DEA model

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  • Rachita Gulati
  • Sunil Kumar

Abstract

Purpose - The purpose of this paper is to present a holistic approach for measuring overall bank efficiency and its decomposition in intermediation and operating efficiencies. Design/methodology/approach - Recently developed two-stage network data envelopment analysis model by Lianget al.(2008) has been used for obtaining intermediation and operational efficiencies along with overall bank efficiency. The bootstrapped truncated regression algorithm as proposed by Simar and Wilson (2007) has been employed to explore the influential determinants of intermediation and operating efficiencies. Findings - The empirical results reveal that the operating inefficiency is the dominant source of overall bank inefficiency in Indian banking sector. Another interesting finding is that public sector banks are more efficient than private banks in the intermediation stage of production process, while private banks are more efficient in the operating stage of production process. Finally, the results of bootstrapped truncated regression show that variations in intermediation efficiency are explained by bank size, liquidity position, directed lending and intermediation cost, while inter-bank differences in operating efficiency are influenced by profitability and income diversification. Practical implications - The most significant practical implication that has been derived from the research findings is that at the industry level, overall efficiency enhancement needs improvement both in terms of resource-utilization and income-generating abilities of the banks. However, the relatively easy way to achieve higher bank efficiency is to improve the efficiency of banks in generating incomes from interest and fee-based sources. Originality/value - This paper is the first to provide a comprehensive assessment of performance of Indian banks by examining the efficiency of individual banks considering both the intermediation and operating approaches simultaneously.

Suggested Citation

  • Rachita Gulati & Sunil Kumar, 2017. "Analysing banks’ intermediation and operating efficiencies using the two-stage network DEA model," International Journal of Productivity and Performance Management, Emerald Group Publishing Limited, vol. 66(4), pages 500-516, April.
    • Handle: RePEc:eme:ijppmp:ijppm-03-2016-0055
    DOI: 10.1108/IJPPM-03-2016-0055
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    Citations

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    Cited by:

    1. Panagiotis Mitropoulos & Ioannis Mitropoulos, 2020. "Performance evaluation of retail banking services: Is there a trade‐off between production and quality?," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 41(7), pages 1237-1250, October.
    2. Jamal Ouenniche & Skarleth Carrales, 2018. "Assessing efficiency profiles of UK commercial banks: a DEA analysis with regression-based feedback," Annals of Operations Research, Springer, vol. 266(1), pages 551-587, July.
    3. K. Hafsal & Anandarao Suvvari & S. Raja Sethu Durai, 2020. "Efficiency of Indian banks with non-performing assets: evidence from two-stage network DEA," Future Business Journal, Springer, vol. 6(1), pages 1-9, December.
    4. Christopoulos, Apostolos G. & Dokas, Ioannis G. & Katsimardou, Sofia & Spyromitros, Eleftherios, 2020. "Assessing banking sectors’ efficiency of financially troubled Eurozone countries," Research in International Business and Finance, Elsevier, vol. 52(C).
    5. Gulati, Rachita, 2022. "Global and local banking crises and risk-adjusted efficiency of Indian banks: Are the impacts really perspective-dependent?," The Quarterly Review of Economics and Finance, Elsevier, vol. 84(C), pages 23-39.
    6. Xianhua Tan & Sanggyun Na & Lei Guo & Jing Chen & Zhihua Ruan, 2019. "External Financing Efficiency of Rural Revitalization Listed Companies in China—Based on Two-Stage DEA and Grey Relational Analysis," Sustainability, MDPI, vol. 11(16), pages 1-21, August.
    7. Pankaj Dutta & Aayush Jain & Asish Gupta, 2020. "Performance analysis of non-banking finance companies using two-stage data envelopment analysis," Annals of Operations Research, Springer, vol. 295(1), pages 91-116, December.
    8. Debmallya Chatterjee & Amol S. Dhaigude, 2020. "An Integrated Fuzzy Cognitive Map Approach in Modelling Factors of Management Quality in Banking Performance," Global Business Review, International Management Institute, vol. 21(3), pages 763-779, June.
    9. Maria Elisabete Neves & Catarina Proença & António Dias, 2020. "Bank Profitability and Efficiency in Portugal and Spain: A Non-Linearity Approach," JRFM, MDPI, vol. 13(11), pages 1-19, November.
    10. Imad Bou-Hamad & Abdel Latef Anouze & Ibrahim H. Osman, 2022. "A cognitive analytics management framework to select input and output variables for data envelopment analysis modeling of performance efficiency of banks using random forest and entropy of information," Annals of Operations Research, Springer, vol. 308(1), pages 63-92, January.

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