IDEAS home Printed from https://ideas.repec.org/a/eee/jomega/v65y2016icp69-81.html
   My bibliography  Save this article

Cost efficiency in an Indian bank branch network: A centralized resource allocation model

Author

Listed:
  • Ray, Subhash

Abstract

In the present study we evaluate the overall cost efficiency of a network of branches of a single large public sector bank in India within the city of Calcutta using the data for the year 2012. Our objective is to determine the optimal number of branches within a postal district that could provide the observed amounts of banking services to the customers in that area at the minimum operating cost. Our DEA results show that there is an evidence of ‘over-branching’ and for the entire network reducing the total number of branches would be more cost efficient. However, there are numerous instances, where increasing the number of branches within a market area would be optimal.

Suggested Citation

  • Ray, Subhash, 2016. "Cost efficiency in an Indian bank branch network: A centralized resource allocation model," Omega, Elsevier, vol. 65(C), pages 69-81.
    • Handle: RePEc:eee:jomega:v:65:y:2016:i:c:p:69-81
    DOI: 10.1016/j.omega.2015.12.009
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0305048315002583
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.omega.2015.12.009?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Thijs ten Raa, 2015. "Efficiency Measures for Industrial Organization," Springer Books, in: Subhash C. Ray & Subal C. Kumbhakar & Pami Dua (ed.), Benchmarking for Performance Evaluation, edition 127, chapter 0, pages 221-250, Springer.
    2. Joseph P. Hughes & Loretta J. Mester, 2008. "Efficiency in banking: theory, practice, and evidence," Working Papers 08-1, Federal Reserve Bank of Philadelphia.
    3. Pachkova, Elena V., 2009. "Restricted reallocation of resources," European Journal of Operational Research, Elsevier, vol. 196(3), pages 1049-1057, August.
    4. Subhash C. Ray, 2011. "Measuring Cost Efficiency in an Integrated Model of Production and Distribution: A Nonparametric Approach," Working papers 2011-04, University of Connecticut, Department of Economics.
    5. Berger, Allen N. & Leusner, John H. & Mingo, John J., 1997. "The efficiency of bank branches," Journal of Monetary Economics, Elsevier, vol. 40(1), pages 141-162, September.
    6. Das, Abhiman & Ray, Subhash C. & Nag, Ashok, 2009. "Labor-use efficiency in Indian banking: A branch-level analysis," Omega, Elsevier, vol. 37(2), pages 411-425, April.
    7. Boaz Golany & Eran Tamir, 1995. "Evaluating Efficiency-Effectiveness-Equality Trade-Offs: A Data Envelopment Analysis Approach," Management Science, INFORMS, vol. 41(7), pages 1172-1184, July.
    8. Schaffnit, Claire & Rosen, Dan & Paradi, Joseph C., 1997. "Best practice analysis of bank branches: An application of DEA in a large Canadian bank," European Journal of Operational Research, Elsevier, vol. 98(2), pages 269-289, April.
    9. Kerstens, Kristiaan & Bouye, Ahmed Moulaye Hachem & Van de Woestyne, Ignace & Vestergaard, Niels, 2008. "Optimal capacity utilization and reallocation in a German bank branch network: Exploring some strategic scenarios," Working Papers 2008/59, Hogeschool-Universiteit Brussel, Faculteit Economie en Management.
    10. Henry Tulkens, 2006. "On FDH Efficiency Analysis: Some Methodological Issues and Applications to Retail Banking, Courts and Urban Transit," Springer Books, in: Parkash Chander & Jacques Drèze & C. Knox Lovell & Jack Mintz (ed.), Public goods, environmental externalities and fiscal competition, chapter 0, pages 311-342, Springer.
    11. Ioannou, George & Mavri, Maria, 2007. "Performance-Net: A Decision Support System for Reconfiguring a Bank's Branch Network," Omega, Elsevier, vol. 35(2), pages 190-201, April.
    12. repec:bla:scandj:v:94:y:1992:i:4:p:599-608 is not listed on IDEAS
    13. Ray,Subhash C., 2012. "Data Envelopment Analysis," Cambridge Books, Cambridge University Press, number 9781107405264, September.
    14. Berger, Allen N. & Humphrey, David B., 1997. "Efficiency of financial institutions: International survey and directions for future research," European Journal of Operational Research, Elsevier, vol. 98(2), pages 175-212, April.
    15. Asmild, Mette & Paradi, Joseph C. & Pastor, Jesus T., 2009. "Centralized resource allocation BCC models," Omega, Elsevier, vol. 37(1), pages 40-49, February.
    16. Giokas, DI, 1991. "Bank branch operating efficiency: A comparative application of DEA and the loglinear model," Omega, Elsevier, vol. 19(6), pages 549-557.
    17. Fare, Rolf & Grosskopf, Shawna & Kokkelenberg, Edward C, 1989. "Measuring Plant Capacity, Utilization and Technical Change: A Nonparametric Approach," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(3), pages 655-666, August.
    18. Lozano, S. & Villa, G. & Adenso-Díaz, B., 2004. "Centralised target setting for regional recycling operations using DEA," Omega, Elsevier, vol. 32(2), pages 101-110, April.
    19. Ray, Subhash C. & Chen, Lei & Mukherjee, Kankana, 2008. "Input price variation across locations and a generalized measure of cost efficiency," International Journal of Production Economics, Elsevier, vol. 116(2), pages 208-218, December.
    20. Peter Bogetoft & Jens Hougaard, 2003. "Rational Inefficiencies," Journal of Productivity Analysis, Springer, vol. 20(3), pages 243-271, November.
    21. Paradi, Joseph C. & Zhu, Haiyan, 2013. "A survey on bank branch efficiency and performance research with data envelopment analysis," Omega, Elsevier, vol. 41(1), pages 61-79.
    22. Antreas D. Athanassopoulos, 1998. "Decision Support for Target-Based Resource Allocation of Public Services in Multiunit and Multilevel Systems," Management Science, INFORMS, vol. 44(2), pages 173-187, February.
    23. Subhash C. Ray, 2009. "Are Indian Firms too Small? A Nonparametric Analysis of Cost Efficiency and the Optimal Organization of the Indian Manufacturing Industry," Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 44(1), pages 49-67, July.
    24. Cook, Wade D. & Hababou, Moez, 2001. "Sales performance measurement in bank branches," Omega, Elsevier, vol. 29(4), pages 299-307, August.
    25. Oral, Muhittin & Yolalan, Reha, 1990. "An empirical study on measuring operating efficiency and profitability of bank branches," European Journal of Operational Research, Elsevier, vol. 46(3), pages 282-294, June.
    26. Sebastián Lozano & Gabriel Villa, 2004. "Centralized Resource Allocation Using Data Envelopment Analysis," Journal of Productivity Analysis, Springer, vol. 22(1), pages 143-161, July.
    27. Asmild, Mette & Bogetoft, Peter & Leth Hougaard, Jens, 2013. "Rationalising inefficiency: Staff utilisation in branches of a large Canadian bank," Omega, Elsevier, vol. 41(1), pages 80-87.
    28. Jesper Levring Andersen & Peter Bogetoft, 2007. "Gains from quota trade: theoretical models and an application to the Danish fishery," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 34(1), pages 105-127, March.
    29. Paradi, Joseph C. & Rouatt, Stephen & Zhu, Haiyan, 2011. "Two-stage evaluation of bank branch efficiency using data envelopment analysis," Omega, Elsevier, vol. 39(1), pages 99-109, January.
    30. Pekka Korhonen & Mikko Syrjänen, 2004. "Resource Allocation Based on Efficiency Analysis," Management Science, INFORMS, vol. 50(8), pages 1134-1144, August.
    31. 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.
    32. Fethi, Meryem Duygun & Pasiouras, Fotios, 2010. "Assessing bank efficiency and performance with operational research and artificial intelligence techniques: A survey," European Journal of Operational Research, Elsevier, vol. 204(2), pages 189-198, July.
    33. LaPlante, A.E. & Paradi, J.C., 2015. "Evaluation of bank branch growth potential using data envelopment analysis," Omega, Elsevier, vol. 52(C), pages 33-41.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Fang, Lei, 2022. "Measuring and decomposing group performance under centralized management," European Journal of Operational Research, Elsevier, vol. 297(3), pages 1006-1013.
    2. Vaneet Bhatia & Sankarshan Basu & Subrata Kumar Mitra & Pradyumna Dash, 2018. "A review of bank efficiency and productivity," OPSEARCH, Springer;Operational Research Society of India, vol. 55(3), pages 557-600, November.
    3. Subhash C. Ray & Abhiman Das & Kankana Mukherjee, 2018. "Measures of Labor Use Efficiency from a Cost-Based Dual Representation of the Technology: A Study of Indian Bank Branches," Working papers 2018-17, University of Connecticut, Department of Economics.
    4. Subhash C. Ray & Shilpa Sethia, 2024. "A state-level resource allocation model for emission reduction and efficiency improvement in thermal power plants," Indian Economic Review, Springer, vol. 59(1), pages 205-257, October.
    5. Zhou, Xiaoyang & Luo, Rui & Tu, Yan & Lev, Benjamin & Pedrycz, Witold, 2018. "Data envelopment analysis for bi-level systems with multiple followers," Omega, Elsevier, vol. 77(C), pages 180-188.
    6. Camanho, Ana Santos & Silva, Maria Conceicao & Piran, Fabio Sartori & Lacerda, Daniel Pacheco, 2024. "A literature review of economic efficiency assessments using Data Envelopment Analysis," European Journal of Operational Research, Elsevier, vol. 315(1), pages 1-18.
    7. Yingying Shao & Gongbing Bi & Feng Yang & Qiong Xia, 2018. "Resource allocation for branch network system with considering heterogeneity based on DEA method," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 26(4), pages 1005-1025, December.
    8. Aggelopoulos, Eleftherios & Georgopoulos, Antonios, 2017. "Bank branch efficiency under environmental change: A bootstrap DEA on monthly profit and loss accounting statements of Greek retail branches," European Journal of Operational Research, Elsevier, vol. 261(3), pages 1170-1188.
    9. Subhash C. Ray & Abhiman Das & Kankana Mukherjee, 2017. "Labor-Cost Efficiency with Indivisible Outputs and Inputs: A Study of Indian Bank Branches," Working papers 2017-04, University of Connecticut, Department of Economics.
    10. Liesiö, Juuso & Andelmin, Juho & Salo, Ahti, 2020. "Efficient allocation of resources to a portfolio of decision making units," European Journal of Operational Research, Elsevier, vol. 286(2), pages 619-636.
    11. Ahmad, Wasim & Tiwari, Shiv Ratan & Wadhwani, Akshay & Khan, Mohammad Azeem & Bekiros, Stelios, 2023. "Financial networks and systemic risk vulnerabilities: A tale of Indian banks," Research in International Business and Finance, Elsevier, vol. 65(C).
    12. Sheng Dai & Natalia Kuosmanen & Timo Kuosmanen & Juuso Liesio, 2023. "Optimal resource allocation: Convex quantile regression approach," Papers 2311.06590, arXiv.org.
    13. Cesaroni, Giovanni, 2020. "Technically and cost-efficient centralized allocations in data envelopment analysis," Socio-Economic Planning Sciences, Elsevier, vol. 70(C).
    14. Garg, Poonam & Gupta, Bhumika & Chauhan, Ajay Kumar & Sivarajah, Uthayasankar & Gupta, Shivam & Modgil, Sachin, 2021. "Measuring the perceived benefits of implementing blockchain technology in the banking sector," Technological Forecasting and Social Change, Elsevier, vol. 163(C).
    15. Hatami-Marbini, Adel & Arabmaldar, Aliasghar, 2021. "Robustness of Farrell cost efficiency measurement under data perturbations: Evidence from a US manufacturing application," European Journal of Operational Research, Elsevier, vol. 295(2), pages 604-620.
    16. Fukuyama, Hirofumi & Matousek, Roman & Tzeremes, Nickolaos G., 2020. "A Nerlovian cost inefficiency two-stage DEA model for modeling banks’ production process: Evidence from the Turkish banking system," Omega, Elsevier, vol. 95(C).
    17. Subhash C. Ray & Shilpa Sethia, 2023. "A State-Level Resource Allocation Model for Emission Reduction and Efficiency Improvement in Thermal Power Plants," Working papers 2023-08, University of Connecticut, Department of Economics.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Subhash C. Ray, 2014. "Branching Efficiency in Indian Banking: An Analysis of a Demand-Constrained Network," Working papers 2014-34, University of Connecticut, Department of Economics.
    2. Paradi, Joseph C. & Rouatt, Stephen & Zhu, Haiyan, 2011. "Two-stage evaluation of bank branch efficiency using data envelopment analysis," Omega, Elsevier, vol. 39(1), pages 99-109, January.
    3. Liu, John S. & Lu, Louis Y.Y. & Lu, Wen-Min, 2016. "Research fronts in data envelopment analysis," Omega, Elsevier, vol. 58(C), pages 33-45.
    4. Paradi, Joseph C. & Zhu, Haiyan, 2013. "A survey on bank branch efficiency and performance research with data envelopment analysis," Omega, Elsevier, vol. 41(1), pages 61-79.
    5. Mai, Nhat Chi, 2015. "Efficiency of the banking system in Vietnam under financial liberalization," OSF Preprints qsf6d, Center for Open Science.
    6. Subhash C. Ray & Shilpa Sethia, 2024. "A state-level resource allocation model for emission reduction and efficiency improvement in thermal power plants," Indian Economic Review, Springer, vol. 59(1), pages 205-257, October.
    7. Giokas, Dimitris I., 2008. "Assessing the efficiency in operations of a large Greek bank branch network adopting different economic behaviors," Economic Modelling, Elsevier, vol. 25(3), pages 559-574, May.
    8. Quaranta, Anna Grazia & Raffoni, Anna & Visani, Franco, 2018. "A multidimensional approach to measuring bank branch efficiency," European Journal of Operational Research, Elsevier, vol. 266(2), pages 746-760.
    9. Yingying Shao & Gongbing Bi & Feng Yang & Qiong Xia, 2018. "Resource allocation for branch network system with considering heterogeneity based on DEA method," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 26(4), pages 1005-1025, December.
    10. Aggelopoulos, Eleftherios & Georgopoulos, Antonios, 2017. "Bank branch efficiency under environmental change: A bootstrap DEA on monthly profit and loss accounting statements of Greek retail branches," European Journal of Operational Research, Elsevier, vol. 261(3), pages 1170-1188.
    11. LaPlante, A.E. & Paradi, J.C., 2015. "Evaluation of bank branch growth potential using data envelopment analysis," Omega, Elsevier, vol. 52(C), pages 33-41.
    12. Ang, Sheng & Liu, Pei & Yang, Feng, 2020. "Intra-Organizational and inter-organizational resource allocation in two-stage network systems," Omega, Elsevier, vol. 91(C).
    13. Kerstens, Kristiaan & Bouye, Ahmed Moulaye Hachem & Van de Woestyne, Ignace & Vestergaard, Niels, 2008. "Optimal capacity utilization and reallocation in a German bank branch network: Exploring some strategic scenarios," Working Papers 2008/59, Hogeschool-Universiteit Brussel, Faculteit Economie en Management.
    14. Subhash C. Ray & Abhiman Das & Kankana Mukherjee, 2017. "Labor-Cost Efficiency with Indivisible Outputs and Inputs: A Study of Indian Bank Branches," Working papers 2017-04, University of Connecticut, Department of Economics.
    15. Dan Li & Yanfeng Li & Yeming Gong & Jiawei Yang, 2021. "Estimation of bank performance from multiple perspectives: an alternative solution to the deposit dilemma," Journal of Productivity Analysis, Springer, vol. 56(2), pages 151-170, December.
    16. Arocena, Pablo & Cabasés, Fermín & Pascual, Pedro, 2022. "A centralized directional distance model for efficient and horizontally equitable grants allocation to local governments," Socio-Economic Planning Sciences, Elsevier, vol. 81(C).
    17. Asmild, Mette & Bogetoft, Peter & Leth Hougaard, Jens, 2013. "Rationalising inefficiency: Staff utilisation in branches of a large Canadian bank," Omega, Elsevier, vol. 41(1), pages 80-87.
    18. Das, Abhiman & Ray, Subhash C. & Nag, Ashok, 2009. "Labor-use efficiency in Indian banking: A branch-level analysis," Omega, Elsevier, vol. 37(2), pages 411-425, April.
    19. Allen Berger & Robert DeYoung, 2001. "The Effects of Geographic Expansion on Bank Efficiency," Journal of Financial Services Research, Springer;Western Finance Association, vol. 19(2), pages 163-184, April.
    20. Aude Hubrecht-Deville & Herve Leleu, 2008. "Impact of trade area environment on bank's comparative advantages," Applied Economics, Taylor & Francis Journals, vol. 40(17), pages 2209-2219.

    More about this item

    Keywords

    Cost models; Efficiency; DEA; Banking;
    All these keywords.

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jomega:v:65:y:2016:i:c:p:69-81. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/wps/find/journaldescription.cws_home/375/description#description .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.