Nonparametric Measurement of Cost Efficiency of a Demand Constrained Branch Network: An Application to Indian Banking

In the present study we evaluate the overall cost efficiency of a network of branches of a single large public sector bank in India within the city of Calcutta using the data for the year 2002. Our objective is to determine the optimal number of branches within a postal district that could provide the observed amounts of banking services to the customers in that area at the minimum operating cost. Our DEA results show that while in many cases, consolidating multiple branches would be more cost efficient, there are numerous instances, where increasing the number of branches would be optimal.