Efficiency of public sector banks operating in India: post-reforms period analysis

The Indian banking sector has witnessed a series of reforms since 1991 with the major objective to promote flexibility, operational autonomy and competition in the system and to raise the banking standards in India to the international best practices. There is a change in the importance of public sector banks because of the entry of foreign and private sector banks. In the recent past, the banking industry has succeeded to draw attention of investors by its steady performance and tremendous prospects to grow and to meet broad challenges like threats of risks from globalisation; implementation of Basel II; improvement of risk management systems; implementation of new accounting standards; enhancement of transparency and disclosures etc. The competitive pressures force banks to improve their efficiency scores, and mapping the progressive pathway is an education tool for investors. In this backdrop, this study evaluates the technical efficiency (TE) of public sector banks (PSBs) operating in India during the post reforms period from 1992-1993 to 2009-2010, using non-parametric linear programming-based technique data envelopment analysis (DEA). The results exhibit the positive impact and greater propel of reforms on 20 banks and seven showed an inverse trend.