Technical efficiency of single versus dual banking sectors: a comparative analysis of India and Pakistan

The study provides new empirical evidence on the efficiency of a dual compared to a single banking sector. Using data on the Indian and Pakistani banking sectors, we analyse the efficiency of both banking sectors in the recent financial crises of 2004-2010. We employ the Data Envelopment Analysis (DEA) method to compute the technical efficiency of each bank in the sample and its mutually exhaustive components of pure technical and scale efficiency. We also employ a series of parametric (t-test) and non-parametric (Mann-Whitney [Wilcoxon] and Kruskal-Wallis) tests to examine the difference in the mean of the obtained DEA results. The empirical findings indicate that the Indian banking sector has been relatively more efficient compared to the Pakistani banking sector. The empirical findings seem to suggest that presence of Islamic banks does not provide stabilising influence to the Pakistani banking sector during the period of economic turbulence.