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Are Some Indian Bank Too Large? A Examination of Size Efficiency in Indian Banking

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  • Subhash Ray

    (University of Connecticut)

Abstract

In this paper we use data from the years 1997 through 2003 to evaluate the size efficiency of Indian banks. Following Maindiratta (1990) we consider a bank to be too large if breaking it up into a number of smaller units would result in a larger output bundle than what could be produced from the same input by a single bank. When this is the case, the bank is not size efficient. Our analysis shows that many of the banks are, in deed, too large in various years. We also find that often a bank is operating in the region of diminishing returns to scale but is not a candidate for break up.

Suggested Citation

  • Subhash Ray, 2004. "Are Some Indian Bank Too Large? A Examination of Size Efficiency in Indian Banking," Working papers 2004-28, University of Connecticut, Department of Economics.
    • Handle: RePEc:uct:uconnp:2004-28
    Note: The author thanks Abhiman Das of Reserve Bank of India for providing the data.
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    References listed on IDEAS

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    1. Ray,Subhash C., 2012. "Data Envelopment Analysis," Cambridge Books, Cambridge University Press, number 9781107405264.
    2. Banker, Rajiv D., 1984. "Estimating most productive scale size using data envelopment analysis," European Journal of Operational Research, Elsevier, vol. 17(1), pages 35-44, July.
    3. Maindiratta, Ajay, 1990. "Largest size-efficient scale and size efficiencies of decision-making units in data envelopment analysis," Journal of Econometrics, Elsevier, vol. 46(1-2), pages 57-72.
    4. Charnes, A. & Cooper, W. W. & Rhodes, E., 1978. "Measuring the efficiency of decision making units," European Journal of Operational Research, Elsevier, vol. 2(6), pages 429-444, November.
    5. Berger, Allen N. & Hunter, William C. & Timme, Stephen G., 1993. "The efficiency of financial institutions: A review and preview of research past, present and future," Journal of Banking & Finance, Elsevier, vol. 17(2-3), pages 221-249, April.
    6. Berger, Allen N. & Hanweck, Gerald A. & Humphrey, David B., 1987. "Competitive viability in banking : Scale, scope, and product mix economies," Journal of Monetary Economics, Elsevier, vol. 20(3), pages 501-520, December.
    7. R. D. Banker & A. Charnes & W. W. Cooper, 1984. "Some Models for Estimating Technical and Scale Inefficiencies in Data Envelopment Analysis," Management Science, INFORMS, vol. 30(9), pages 1078-1092, September.
    8. Bhattacharyya, Arunava & Lovell, C. A. K. & Sahay, Pankaj, 1997. "The impact of liberalization on the productive efficiency of Indian commercial banks," European Journal of Operational Research, Elsevier, vol. 98(2), pages 332-345, April.
    9. Varian, Hal R, 1984. "The Nonparametric Approach to Production Analysis," Econometrica, Econometric Society, vol. 52(3), pages 579-597, May.
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    11. Subhash Ray & Xiaowen Hu, 1997. "On the Technically Efficient Organization of an Industry: A Study of U.S. Airlines," Journal of Productivity Analysis, Springer, vol. 8(1), pages 5-18, March.
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    More about this item

    JEL classification:

    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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