Technical efficiency and its decomposition in district co-operative banks in Kerala: A data envelopment analysis approach

Co-operative banks have been playing a distinct and import role in the banking system of Kerala in terms of their reach, volume of operation and purpose they serve. Co-operative banks aim at fulfilling the banking requirements of rural populace. The performance of co-operative banking sector in the state in the mobilisation of deposit and dispensation of credit has been spectacular. Therefore greater degrees of efficiency among co-operative banks would result in greater accessibility of finance, higher profitability and increased financial services to rural people. This study employs Data Envelopment Analysis (DEA) to measure the efficiency of District Co-operative Banks in Kerala during 2005–2009. The empirical results of the study reveal that the level of efficiency in DCBs is 74 per cent and the magnitude of inefficiency is 26 per cent. 6 DCBs obtain efficiency score equal to 1 and formed the efficiency frontier. The sources of inefficiency in DCBs stem from both managerial inefficiency and inappropriate size. The study suggests potential improvements in the efficiency of inefficient DCBs in terms of potential reduction in inputs and potential addition to outputs.