IDEAS home Printed from
   My bibliography  Save this article

Efficiency of Indian banks during 1999–2008: a stochastic frontier approach


  • M. Sreeramulu
  • Nancy H. Vaz
  • Sharad Kumar


This paper compares the efficiency of Indian banking industry over two time periods, 1999–2003 and 2004–2008. Ownership effects in determining the efficiency are also compared in this paper. A Cobb–Douglas stochastic frontier model is adopted in order to estimate the bank efficiency. The analysis suggests that there is a substantial efficiency improvement in the Indian banking sector during 2004–2008 as compared with 1999–2003. The overall mean efficiency of Indian banks increased to 64% in 2004–2008 as compared to 30% during 1999–2003. In between labour and capital inputs, labour is found to be the dominant input factor in determining the overall banking efficiency. Labour efficiency improved significantly from 74% in 1999–2003 to 98% during 2004–2008. Among three ownership groups, domestic private sector banks are found to be most efficient in generating the banking output measured in terms of total business and total income. The improvements in the Indian banking sector are mainly attributed due to globalisation, deregulation and advances in information technology. Nevertheless, still there is a wide scope for Indian banking industry to improve efficiency further.

Suggested Citation

  • M. Sreeramulu & Nancy H. Vaz & Sharad Kumar, 2010. "Efficiency of Indian banks during 1999–2008: a stochastic frontier approach," International Journal of Financial Services Management, Inderscience Enterprises Ltd, vol. 4(4), pages 298-310.
  • Handle: RePEc:ids:ijfsmg:v:4:y:2010:i:4:p:298-310

    Download full text from publisher

    File URL:
    Download Restriction: Access to full text is restricted to subscribers.

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


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

    Cited by:

    1. Sunil Kumar, 2013. "Banking reforms and the evolution of cost efficiency in Indian public sector banks," Economic Change and Restructuring, Springer, vol. 46(2), pages 143-182, May.


    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:ids:ijfsmg:v:4:y:2010:i:4:p:298-310. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Darren Simpson). General contact details of provider: .

    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.

    We have no references for this item. You can help adding them by using 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.