Bank efficiency measurement using alternative techniques of frontier analysis: evidence from India

Banks need to target enhanced levels of efficiency in order to survive and grow in the present economic conditions. A quantitative assessment of the efficiency of banks in an economy proves to be crucial for formulating strategies for efficiency enhancements. The alternative techniques of efficiency measurement in banks are distinct in terms of construct and approach and thus may offer different results. The difference in the results may be considerable in the case of banking systems in emerging economies. This paper examines the efficiency in the Indian banking sector during the post reforms period 1991-1992 to 2006-2007 using two popular frontier analysis techniques, namely data envelopment analysis (DEA) and stochastic frontier analysis (SFA), as alternative techniques of efficiency measurement. The paper offers evidence in support of conflicting results provided by the two techniques, though both indicate efficiency gains in the period of study.