Review of Professional Management

Investigating the Impact of Non-Performing Assets on Efficiency of Public Sector Banks in India

Abhijit Sinha¹ and Sudin Bag²

First Published 7 Jul 2022. https://doi.org/10.1177/09728686221099275

Article Information

Volume 20, Issue 1 June 2022

Corresponding Author:

Abhijit Sinha, Abhijit Sinha, Department of Commerce, Vidyasagar University, Midnapore 721102, West Bengal, India.
Email: abhijitsinha_091279@mail.vidyasagar.ac.in

¹ Department of Commerce, Vidyasagar University, West Bengal, India

²Department of Business Administration, Vidyasagar University, West Bengal, India

Creative Commons Non Commercial CC BY-NC: This article is distributed under the terms of the Creative Commons Attribution-NonCommercial 4.0 License (http://www.creativecommons.org/licenses/by-nc/4.0/) which permits non-Commercial use, reproduction and distribution of the work without further permission provided the original work is attributed.

Abstract

Financial system plays an important role in an economy. The banking sector in India has been undergoing reforms for a long time with the aim to develop competitiveness, increase inclusiveness, create big-sized banks and improve operational efficiency. The present investigation looks at the efficiency of the public sector banks for the period 2012–2018, using data envelopment analysis under the assumption of constant returns to scale. The two-input, two-output model is used to determine the efficiency levels on the basis of Minimum Distance to Strong Efficient Frontier as proposed by Aparicio et al. (2007). In order to capture the effect of non-performing assets (NPAs), efficiency is computed under the restricted (with NPAs not included) and unrestricted model (with NPAs considered as an undesirable output). The study finds that majority of the banks have been consistently performing quite well compared to their peers and overall industry. The correlation in the ranking of banks under the two models shows high and significant value in all the years.

Keywords

Banking, DEA, technical efficiency, constant returns to scale

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