Efficiency of Regional Rural Banks in India: An Application of Data Envelopment Analysis

The present study attempts to empirically examine the relative efficiency of regional rural banks during the post reform period spanning from 1991–92 to 2006–07 by using non-parametric technique of data envelopment analysis. The aforementioned conclusions portray that over the period from 1992 to 2007, regional rural banks have experienced technical efficiency to the tune of about 78 percent. Thus the banks can on an average decrease their inputs by 22 percent and still can produce the same level of output. The comparative analysis of average OTE scores of all 50 regional rural banks between distinct periods show that the degree of input waste was 24 percent in first-generation reforms period, declined to 20 percent in second-generation reforms period. Therefore, the results imply that technical inefficiency has slowed down in response of deregulatory policies. The decomposition of overall technical efficiency into two components namely pure technical efficiency and scale efficiency provided the evidence that 8 percentage points of overall technical inefficiency is due to managerial in capabilities in utilizing critical inputs, while remaining part of the overall technical inefficiency may be attributed to the choice of sub optimal scale of operation. Besides this, the empirical findings provided the evidence of positive relationship among scale economies and bank size.