Assessing the Effect of Ownership on the Efficiency of Indian Domestic Banks

The study examines whether the effect of ownership on the efficiency of Indian domestic banks is significant. The efficiency scores for public and private sector banks were computed using a deterministic, non-parametric and linear programming based frontier technique, which is popularly known as Data Envelopment Analysis (DEA). Using the cross-sectional data of the public and private sector banks, which operated in the financial years 2005-06 and 2006-07, the study finds that (1) De nova private sector banks dominate the formation of efficient frontier of Indian domestic banking industry; (2) The overall technical inefficiency stems primarily from managerial inefficiency (as reflected by pure technical inefficiency) rather than scale inefficiency; and (3) Though the efficiency differences between the public and private sector banks have been noted, these differences are statistically insignificant in most of the instances. On the whole, the study concludes that ownership does not matter in the Indian domestic banking industry. [PUBLICATION ABSTRACT]