Efficiency study of Indian public sector banks - an application of data envelopment analysis and cluster analysis

In the Indian context, we have seen unfolding of a slew of financial sector reform measures since the early 1990s. Various norms and guidelines are strictly followed to improve the miserable condition of the Indian banking sector. An important objective of these measures is to increase the operational efficiency of the banking sector as a whole as well as of individual institutions. Our efficiency study is based on the financial performances of Indian public sector banks which were badly affected in the question of efficiency. This paper attempts to measure the efficiency of Indian public sector banks using a variety of efficiency measures computed by the non-parametric method of data envelopment analysis (DEA). We will also measure the efficacy of two most widely used models of DEA viz. BCC and CCR in the light of cluster analysis using the same dataset of Indian public sector banks.