Evaluating Technical Efgciency in the Branch Network of a Public Sector Bank in India Using DEA Approach

Abstract

Indian banking is now in a position of survival of the fittest. In this competitive regime, efficiency analysis of each bank is necessary. A bank's efficiency can not be properly assessed without evaluating the efficiency of its branches. This paper presents efficiency evaluation of the branches of the United Bank of India (UBI), one of the 14 major banks nationalized in 1969. Data Envelopment Analysis (DEA) technique is utilized to estimate the relative technical efficiency scores of the selected branches from the cross sectional data of the financial year 2010-11. The results show that only 22% branches are fully technical and scale efficient with an average efficiency score of 69%. This mean score suggests that the branches of UBI could have saved on an average 31% of the input resources presently used to produce the current level of services. Inefficiency in branches' activities is mainly caused by operating at inappropriate scale rather than inefficient operation of the branches themselves. The present study also observes that larger and urbanized branches have higher efficiency level and the majority branches have the scope of increasing profitability through efficiency improvement.