Unveiling Efficiency: A Comprehensive Analysis of Indian PSBs through Data Envelopment Analysis (DEA) and Scaling Techniques

In today’s highly competitive and complex banking industry, the long-term viability of banks depends on their ability to operate efficiently. This has become of utmost significance in light of globalisation and liberalisation. The importance of efficiency has become even more evident since India began its financial liberalisation process in 1991, followed by a greater focus on globalisation in the 2000s, the global financial crisis of 2008, and the ongoing effects of the COVID-19 pandemic. These events have highlighted the pressing requirement for efficiency. This article evaluates the effectiveness of public sector banks (PSBs) by utilising scaling techniques and DEA assumptions. The assessment is by designated efficiency indicators and takes into account the banks’ size. The findings suggest that the interest income efficiencies of the majority of banks are typically near optimal levels. Nevertheless, a considerable proportion of banks demonstrate subpar efficiencies in generating non-interest income, failing to meet satisfactory benchmarks. The difference between the efficiencies of interest and non-interest income has a significant impact on the overall efficiency of banks, which brings it closer to acceptable levels. The panel regression analysis reveals that factors such as cost to income, spread, CASA, income per branch, NPAs, and bank size significantly influence the efficiency of banks.