Data Envelopment Analysis Models to Measure Risk Efficiency: Indian Commercial Banks

: In this study, a four-stage Data Envelopment Analysis (DEA) model has been proposed to examine the productive efficiency of commercial banks. Risk that leads to an undesirable output, and which is viewed as originating due to exogenous and endogenous factors, has been explicitly introduced. It is hypothesized that neither of them can be controlled by the decision-making unit under efficiency evaluation. Thus, this non-discretionary DEA variable is both internal and external. The four-stage DEA is performed to measure risk efficiency and multiplicatively decompose it into exogenous and endogenous risk efficiency. The DEA models formulated are implemented to investigate input productive efficiency of 81 commercial banks covering public, private and foreign sectors. In the presence of risk, foreign sector banks are well ahead of public and private sector banks in attaining risk efficiency. Structural risk efficiency attributed to exogenous and endogenous factors appears to be the same for public and private sector banks.