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PRESENTED TO: Dr.

VIDYA SEKHRI

PRESENTED BY:

GANGADHAR G, ROLL NO: 09073 KALAP SEN, ROLL NO: 09089 MAYANK MOHAN, ROLL NO: 09106 NEHA SHARMA, ROLL NO: 09121 PALLAVI SINGH, ROLL NO: 09134

To analyze the efficiency of private sector Banks operating in India. To identify the key strengths & weaknesses of the Indian Private Banks. To suggest measures to improve the efficiency of Private sector banks in India.

The first private bank in India to be set up in India was IndusInd Bank. It is one of the fastest growing Bank Private Sector Banks in India. In 1994, the Reserve Bank Of India issued a policy of liberalization to license limited number of private banks, which came to be known as New Generation tech-savvy banks. Global Trust Bank was, thus, the first private bank after liberalization; it was later amalgamated with Oriental Bank of Commerce (OBC).

Then Housing Development Finance Corporation Limited (HDFC) became the first (still existing) to receive an 'in principle' approval from the Reserve Bank of India (RBI) to set up a bank in the private sector. At present, Private Banks in India include leading banks like ICICI Bank, Axis Bank, ING Vysya Bank, Jammu & Kashmir Bank, Karnataka Bank, Kotak Mahindra Bank, SBI Commercial and International Bank, etc.

On the above grounds, the efficiency/ performance of the private banks has become a major concern for the economic planners and the policy makers due to the fact that the gains of the real sector of the economy depend on how efficiently the banks are performing the function of financial intermediation. In view of the above, this study investigates the efficiency of 18 private sector banks operating in India for a period of one-year (i.e. 2008-09) using the Data Envelopment Analysis (DEA) approach.

The data involves 3 input & 3 output variables. The 3 input variables, which have been used in a set, are: Interest Expenses Non-interest Expenses Non-performing Assets (NPAs)

There are 3 output variables also, which have been categorized in two sets. These are as under: SET 1: Deposits Advances SET 2: Investments

For the purpose of DEA, aggregate of inputs for all the banks has been calculated. The aggregate of output variables in SET 1 is also determined and divided by the aggregate of inputs, which gives Technical Efficiency of each & every Bank. The Bank with the highest figure is most efficient and forms the basis of Relative Efficiency Score, by which Relative Efficiencies of all the Banks have been calculated on a scale ranging 0-1.

Similarly, the aggregate of output variable in SET 2 is divided by the aggregate of inputs & rest process of getting the Relative Efficiencies is same. Thus, we get two sets of Relative Efficiency score, viz. RE 1 & RE 2. Then RE 1 & RE 2 are plotted on line graph taking all 18 Banks on x-axis and RE 1 & RE 2 on y-axis. It makes the comparison easy to observe and understand.

The summarized result of most efficient and most inefficient Banks is as under:

Leading Private Sector Banks in India like Axis Bank, ICICI Bank, HDFC Bank, which are operating at large scale, have failed to display their efficiency on both the parameters. The average efficiency score based on first parameter is more i.e., 14.59 in comparison to that of the second parameter i.e. 2.85. The study reveals that the output variables (deposits, advances and investments) and input variable (NPA) adversely affected the performance of a majority of the inefficient banks during the study period.

The major source of inefficiency in case of Axis Bank and HDFC Bank was high interest & noninterest expenses and for ICICI it was high NPA. SBICI, which is operating at a very low level in comparison to other private banks, is most efficient because of very low expenses & NPAs. South Indian Bank is also operating at a low level but its huge deposit base has made it very efficient. Efficiency of Bank of Rajasthan is solely due to high investments.

Efficiency of any organization, be it Indian Private Banks can be improved in two ways: Control input variables i.e. interest & noninterest expenses and NPAs. Maximize output variables i.e. deposits, advances and investments. Some measures are as under: Controlled Expenses Margins - Lowered by Subdued Interest Rates Asset Quality - NPA burden lowering

ARTICLES : Mohan Rakesh (2006), Reforms, Productivity and efficiency in Banking: The Indian Scenario Varadi, Kumar, Mavaluri, Kumar, Bopanna & Nagarjunga (Aug 2006), Measurement of Efficiency of Banks in India Mittal & Dhade (May 2007), Profitability and Productivity in Indian Banks: A Comparative Study
ONLINE DATABASES: Prowess Business Beacon WEBSITES : www.rbi.org.in www.iba.org.in www.artisoft.com/media/pdf/cs1-privatebank.pdf www.investmentexecutive.com/client/en/.../DetailNews.asp? www.mat.gsia.cmu.edu/classes/quant/notes/chap12.pdf

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