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The relative efficiency of Indian commercial ...

Banks are the financial and component system file. They play important role in channeling savings from surplus to deficit areas. Competitiveness and efficiency of the banking system and values ​​define the strength of the economy. India's economy is no exception to this and the economy of India is no exception to the banking system and in India also plays a key role in the process of economic growth and development. The banking system in India has been ordered by the majority of his being. The main features were the regulation of interest rate regulation, credit constraints, equity market and currency controls. Although some restrictions are still in operation, the regulations that banks are moving, they are still easy after the execution of the study Narasimhan Committee 1991. The second phase of deregulation "has-been completed after the review report by the Narasimhan Committee itself. The 1985 report of the Commission to review the functioning of India Monetary System and the 1987 report by examining the significant Vaghul money market of India are among the activities report, which contribute to the ongoing process of liberalization and reform in India. It is important to understand that any deregulation measures were undertaken strong enough to decrease the significant role largely inefficient public sector banks. While some improvements within the sector are largely inefficient remain the same (Report Verma, 1999). An important reason for the indigenous banks in the sector is able to survive, while the development loss event is rigorous mandatory general regulation on economic activities in India. Consequently, the "free trade, private sector, however, institutions are growing dramatically, the major commercial banks and specialized institutions remain within the PSU. About 70-80 percent of total banking sector assets are taken into account by the public sector banks and financial institutions during last five years, while only eight of ten percent of total assets. It takes into account private sector banks and foreign banks.

Since Indian financial long been dominated by commercial banks and the public sphere afternoon finishing banks are most preferred investment for depositors in India. Even today, public sector banks account for over 70 percent of the total advances and progress in their relationship has grown significantly over the last five years from 2004-2008.

The banking sector is the main sector that contributes substantially to the financing of the national economy, the efficiency of commercial banks is one of the most interesting and important for both the government sector and private. After the series of banking sector reforms in the last decade commercial banks in India has passed through certain developments and challenges. On one hand, the efficiency and prospects of the banks has improved due to technological development and customer orientation, but at the same time increasing the level of ANP became s serious concerns for banks.

This article attempts to analyze the comparative effectiveness and competitiveness of India's commercial banks. This study differs from other studies in at least two ways: (i) the period of the analysis and (ii) the input and output variables used in the DEA model. Besides the introduction (Section 1) Section 2 deals with the brief review of the literature. Section 3 discusses the methodology of the study and details of the variables and data used in the study, whose results are discussed in Section 4 explains the results, and Section 5 concludes the study.

Literature review

The efficiency of the banking sector is one of the major economic agenda for economists worldwide. The evidence for this is that there are numerous attempts to examine the efficiency of commercial banks by a number of economists, both Indian and foreign economists. In India, the main thrust of this study was the appointment of the Commission (second) Narsimham (1997) by the Government of India, with a mandate to propose a program of banking sector reforms to strengthen the banking system of India and make it globally competitive. "This clearly requires that the relative efficiency of banks in India is examined and policy measures required improving efficiency and competitiveness of India's commercial banks.

While many similar studies have evaluated the performance of the banking sector in the U.S. and other developed countries, few studies have evaluated the performance of the banking sectors of developing economies. Previously, however, Tyagaraja (1975), Rangarajan and Mampilly (1972) and Subramanyam (1993) have analyzed the issues related to the performance of Indian banks; none of these studies have examined the effectiveness of banking services in India. A number of recent studies have measured the efficiency of banking services in India, but have certain limitations as described in this document. Bhattacharyya, Lovell and Sahay (1997) analyzed the economic performance of India's commercial banks during 1986-1991 and found a marginal increase in overall average performance after 1987 and the average efficiency of publicly owned banks is much higher than in private or foreign-owned banks Bhattacharya et al. (1997), Chatterjee (1997) and Saha et al. (2000) have also discussed issues related to the performance of banks in India. Sathya (2001) compared the economic performance of publicly owned banks, private and foreign ownership operating in India in the year 1997/1998 and found that private sector commercial banks as a group is, paradoxically, lower than the public sector and foreign banks. Shanmugam and Das (2004) meanwhile examined the efficiency of commercial banks in India during the reform period, 1992-1999 using a parametric methodology. They found that foreign banks are more efficient than their counterparts namely the public sector and privately owned domestic banks.

This study differs from other studies in at least two ways: (i) the period of the analysis and (ii) the input and output variables used in the DEA model.

3. Research Methodology

The study uses the popular nonparametric technique of Data Envelopment Analysis (DEA) to examine the relative efficiency of commercial banks in India for the period 2004-2008 (separately for each year). This study aims to analyze the relative efficiency of each commercial bank in India during the period 2004-2008. The reason that the period 2004-2008 is chosen for this study is that the Indian banking reforms initiated after 1991 and the period of the sample is good enough to analyze the impact of banking sector reforms in India. In this study, the DEA model is used in two different approaches in evaluating the relative efficiency of commercial banks in India.

3.1 Data Envelopment Analysis 

It is usual to examine the performance of banks using ratios Financial. Yeh(1996) notes that the major cons of this approach is reliance on benchmark its ratios. These benchmarks could be random and May mislead an analyst. Further, Sherman and Gold (1985) financial ratios NOTE THAT don't capture the long-term performance, and aggregate performance Many Aspects of Operations Such As, marketing and financing. In Recent Years, There Is a Trend Towards Measuring bank performance using one of the Data Envelopment Analysis (DEA) methods. Data Envelopment Analysis (DEA), frequently Called frontier analysis, is a Performance Measurement Technique Which Can Be Used for analyzing the relative efficiency of Productive Units, the Same HAVING multiple inputs and multiple outputs. It is a non-parametric analytic technique Which Allows us to compare the relative efficiency of decision making units (DMU's) as the benchmark and by inefficiencies in input Measuring Combinations In Other units relative to the benchmark, was DEA Developed originally by Charnes, Cooper and Rhodes (1978) with the Assumption of constant return to scale (CRS) in Attempt to Propose a That model generalizes the single-input, single output measure of a DMU to a multiple input, multiple outputs setting. Thus DMU is an entity That Uses input to produce output. WAS DEA extended by Banker, Charnes and Cooper (1984) to include variable return to scale (VRS). Up to now the DEA measure has Been Used to Evaluate and compare Educational Departments, health care, agricultural production, banking, Armed Forces, sports, market research, transportation and Many Other Applications. DEA is a deterministic Methodology for Examining the relative efficiency, based on the data of selected inputs and outputs of a number of Entities Called decision-making units (DMUs). From the set of available data, DEA efficient DMUs relative identifier (Which Are Used as reference points) Which defines the efficiency frontier and Evaluate the Inefficient DMUs of Other Below That Which Lie frontier.

DEA is an alternative analytic technique to regression analysis. Regression analysis approach is Characterized as central Tendency to evaluate-it approach and DMUs relative to an average. In contrast, DEA is an extreme point method and compare Each DMU with only the best DMU. The main Advantage of DEA Is That, unlikable regression analysis, not does it require an Assumption of a functional form Relating inputs to outputs. Instead, it constructs the best production function Solely on the basis of Observed data; Henco Significance of statistical tests for the parameters Are Not NECESSARY. Despit the Existence of Several DEA models, this study uses CCR-Model Which is an output-oriented model WHERE DMU's Deemed to produce the Highest Amount of output possible with The Given Amount of input.

3.1. 1. Intermediation Approach 

This approach reflects the way of evaluating the efficiency of commercial bank from the perspective of costs / revenues management. For this approach, 2 inputs and 2 outputs are chosen for each commercial bank. 

Input 1 (1 x) = Labor-related expenses (gross wages) in Indian rupee 

Input 2 (2 x) = Total Deposits in Indian rupee 

Output 1 (1 y) = Total Loans and Advances 

Output 2 (2 y) = Non-interest incomes in Indian rupee 

3.1.2 Operation Approach 

This approach reflects the way of evaluating the efficiency of commercial bank which takes commercial banks as entities which use labor and capital to transform deposits into loans and securities. For this approach, 2 inputs and 2 outputs are chosen for each commercial bank.

Input 1 (1 x) = Total Interest Expenses Indian rupee

Input 2 (2 x) = Total Non-Interest Expenses Indian rupee

Output 1 (1 y) = Total Interest Income Indian rupee 

Output 2 (2 y) = Non-Interest Income Indian rupee 

All data for the study will be taken from the end-of-year balance sheets and income statements of each commercial bank available at the data base of Reserve Bank of India (RBI) and Indian Banking Association (IBA). The study includes 54 commercial banks for the year 2004-2008. IDBI bank and Yes bank data was not available for 2004 so in that year only 54 banks were considered for analysis. Although there were total 78 commercial banks are operating in India. But out of that there were total 27 were foreign banks. Out of 27 foreign banks only three are operating at full capacity in the sampled period. These banks are Citibank, ABN AMRO and HSBC. So for doing analysis only these foreign banks were considered. 

4. Empirical Results 

The summary result for the analysis via intermediation approach is presented in Table 1. According to Table 1, the average efficiency of Indian commercial banks during 2004-2008 ranges from 0.6056 to 1.000 which is considered to be very high and volatile. Table 1 represents entries from their respective bank’s balance sheet. In Table 1 instead of showing all bank’s analysis I showed some important bank’s analysis. Same bank’s analysis carried out in table 2 for 2006 and 2007.

In 2004, the average efficiency is 0.6923 and efficiency scores varies from .5856 to 1. Only two commercial banks which were Citibank and ABN AMRO Bank were considered to be efficient with the efficiency scores of 1.0000, implying that they had produced their output on the efficiency frontier in this year. Other Banks had to raise its output by 10 percent to 40 percent with the same amount of input so that they are considered to be efficient. The last quarter of least efficient banks in 2004 were Indian Overseas Bank (0.64), State Bank of Saurashtra (0.64), State Bank of India (0.64), Allahabad Bank (0.64), Syndicate Bank (0.64), Ratnakar Bank (0.64),Bank of Maharashtra (0.63), Indian Bank (0.63), Punjab and Sind Bank (0.62), Bank of Rajasthan (0.62), Central Bank of India (0.62), United Bank of India (0.61) and Nainital Bank (0.59), with the efficiency score ranging 0.59 to 0.64, indicating that it had to increase its output by 41 percent to 36 percent with the same amount of input to be able to operate on the efficiency frontier.

In 2005, the average efficiency has gone down marginally from .6923 in 2004 to .6541. Only three commercial banks which were IDBI Ltd., Development Citibank and Yes Bank were considered to be efficient with the efficiency scores of 1.0000, implying that they had produced their output on the efficiency frontier in this year. Other Banks had to raise its output by 14 percent to 44 percent with the same amount of input so that they are considered to be efficient. The last quarter of least efficient banks in 2005 were Punjab and Sind Bank (0.60), City Union Bank (0.60), Syndicate Bank (0.60), Bank of Maharashtra (0.59), Central Bank of India (0.59), Lakshmi Vilas Bank (0.59), UCO Bank (0.59), Jammu and Kashmir Bank (0.59), Catholic Syrian Bank (0.58), State Bank of Saurashtra (0.58), Dhanalakshmi Bank (0.58), Nainital Bank (0.57) and Ratnakar Bank (0.56) with the efficiency score ranging 0.56 to 0.60, indicating that it had to increase its output by 40 percent to 44 percent with the same amount of input to be able to operate on the efficiency frontier. In 2006, the average efficiency has gone marginally up from .6541 in 2004 to 0.6575. Again same three commercial banks which were IDBI Ltd., Citibank and Yes Bank were considered to be efficient with the efficiency scores of 1.0000, implying that they had produced their output on the efficiency frontier in this year. Other Banks had to raise its output by 15 percent to 41 percent with the same amount of input so that they are considered to be efficient. The last quarter of least efficient banks in 2006 were Allahabad Bank (0.61), Tamilnad Mercantile Bank (0.61), Punjab National Bank (0.60), Dhanalakshmi Bank (0.60), Bank of Maharashtra (0.60), State Bank of Saurashtra (0.60), United Bank of India (0.60), Catholic Syrian Bank (0.60), Indian Bank (0.59), Central Bank of India (0.59), Ratnakar Bank (0.59), Punjab and Sind Bank (0.59), Nainital Bank (0.59) and Bank of Rajasthan (0.58) with the efficiency score ranging 0.58 to 0.61, indicating that it had to increase its output by 20 percent to 23 percent with the same amount of input to be able to operate on the efficiency frontier. 

In 2007, the average efficiency of Indian commercial banks via intermediation approach has significantly gone up from .6575 in 2006 to 0.7161. Once again the same three commercial banks which were considered to be efficient. IDBI Ltd., Citibank and Yes bank whose efficiency scores were 1.0000, indicating that they had operated on the efficiency frontier. The last quarter of least efficient banks in 2007 were Vijaya Bank (0.68),South Indian Bank (0.67),Punjab National Bank (0.67), Indian Bank (0.67), State Bank of Saurashtra (0.67), Bank of Maharashtra (0.67), Central Bank of India (0.65), Punjab and Sind Bank (0.65), Bank of Rajasthan (0.64), United Bank of India (0.64), Dhanalakshmi Bank (0.64), Catholic Syrian Bank (0.64), Ratnakar Bank (0.63) and Nainital Bank (0.63) with the efficiency score ranging 0.63 to 0.68, indicating that it had to increase its output by 32 percent to 37 percent with the same amount of input to be able to operate on the efficiency frontier. 

In 2008, the average efficiency of Indian commercial banks via intermediation approach was up from .7161 in 2007 to .7458. There were four commercial banks which were considered to be efficient. They were IDBI Ltd., Citibank, Yes bank and Standard Charted Bank whose efficiency scores were 1.0000, indicating that they had operated on the efficiency frontier. The last quarter of least efficient banks in 2008 were City Union Bank (0.71), Jammu and Kashmir Bank (0.71), Dena Bank (0.71), HDFC Bank (0.70), Indian Bank (0.70), Karnataka Bank (0.70), Lakshmi Vilas Bank (0.70), Central Bank of India (0.70), United Bank of India (0.68), Catholic Syrian Bank (0.67), Dhanalakshmi Bank (0.67), Bank of Rajasthan (0.67), Nainital Bank (0.66), and Ratnakar Bank (0.65) with the efficiency score ranging 0.65 to 0.71, indicating that it had to increase its output by 8 percent to 11 percent with the same amount of input to be able to operate on the efficiency frontier. 

After considering individual bank via intermediation approach during 2004-2008, the results indicate that IDBI bank, Citibank and Yes bank were efficient in every year. Moreover, IDBI Bank and Yes Bank were efficient in the year of their emergences (2005). Although standard charted bank was efficient only in recent year 2008, its average efficiency scores during 2004-2008 are very high (0.8631). Indian Bank (0.70), Catholic Syrian Bank (0.67), Dhanalakshmi Bank (0.67), Nainital Bank (0.66), and Ratnakar Bank (0.65) were relatively inefficient and had produced their outputs under the efficiency frontier in every year, with their average efficiency scores during 2004-2008 ranging from 0.61 to 0.64. Eventually, Ratnaker bank, Nanital bank, Dhanlakshmi bank Catholic Syrian bank and Indian bank were repeatedly the least efficient bank during 2004-2008 due to its average efficiency score between 0.61 to 0.64. 

The summary result for the analysis via operation approach is presented in Table 3. According to Table VI, the average efficiency of Indian commercial banks during 2004-2008 ranges from 0.8725 to 1.000 which is considered to be very high and stable. (note: all data are taken from the balance sheet and P&L sheet of the respective bank.)

In 2004, the average efficiency is 0.9058. Eight commercial banks which are Punjab and Sind Bank, Development Credit Bank, ICICI Bank, ING Vysya Bank, Karur Vysya Bank, Ratnakar Bank, Tamilnad Mercantile Bank and ABN Amro Bank are considered to be efficient with the efficiency scores of 1.0000, implying that they had produced their output on the efficiency frontier in this year. Other Banks had to raise its output by 3 percent to 21 percent with the same amount of input so that they are considered to be efficient. The last quarter of least efficient banks in 2004 were State Bank of Bikaner and Jaipur (0.86), Andhra Bank (0.86), Vijaya Bank (0.86), State Bank of Mysore (0.86), Citibank (0.86), State Bank of Saurashtra (0.85), State Bank of India (0.85), SBI Comm. and Intl. Bank (0.83), Hong Kong and Shanghai Banking Corpn. (0.83), State Bank of Indore (0.83) , State Bank of Patiala (0.83) , Standard Chartered Bank (0.79), with the efficiency score ranging 0.79 to 0.86, indicating that it had to increase its output by 14 percent to 21 percent with the same amount of input to be able to operate on the efficiency frontier.

In 2005, the average efficiency has gone down from .9058 in 2004 to 0.8539. Only five commercial banks which were IDBI Ltd., Development Credit Bank, Dhanalakshmi Bank, Jammu and Kashmir Bank and Yes Bank were considered to be efficient with the efficiency scores of 1.0000, implying that they had produced their output on the efficiency frontier in this year. Other Banks had to raise its output by 2 percent to 23 percent with the same amount of input so that they are considered to be efficient. The last quarter of least efficient banks in 2005 were State Bank of Travancore (0.80), Standard Chartered Bank (0.80), Bank of Baroda (0.80), Citibank (0.80), Indian Overseas Bank (0.79), State Bank of Bikaner and Jaipur (0.79), Andhra Bank (0.79), Corporation Bank (0.77) and Hong Kong and Shanghai Banking Corpn.(0.77), with the efficiency score ranging 0.77 to 0.80, indicating that it had to increase its output by 20 percent to 23 percent with the same amount of input to be able to operate on the efficiency frontier. 

In 2006, the average efficiency was marginally down from .8539 in 2005 to 0.8382. Only five commercial banks which were Bank of Maharashtra, IDBI Ltd, Bank of Rajasthan, Development Credit Bank, ABN Amro Bank and Lakshmi Vilas Bank were considered to be efficient with the efficiency scores of 1.0000, implying that they had produced their output on the efficiency frontier in this year. Other Banks had to raise its output by 5 percent to 27 percent with the same amount of input so that they are considered to be efficient. The last quarter of least efficient banks in 2006 were State Bank of Travancore(0.78), Canara Bank (0.78), State Bank of Patiala (0.78), Yes Bank (0.78), City Union Bank (0.78), HDFC Bank (0.78), Federal Bank (0.77), Corporation Bank (0.77), Karur Vysya Bank (0.77), Standard Chartered Bank (0.76), Tamilnadu Mercantile Bank (0.76) with the efficiency score ranging 0.73 to 0.78, indicating that it had to increase its output by 22 percent to 27 percent with the same amount of input to be able to operate on the efficiency frontier. 

In 2007, the average efficiency of Indian commercial banks via operation approach has significantly gone up from .8382 in 2006 to 0.9479. There were nine commercial banks which were considered to be efficient. They were IDBI Ltd., ICICI Bank, Jammu and Kashmir Bank, Karnataka Bank, Nainital Bank, Tamilnad Mercantile Bank, Hong Kong and Shanghai Banking Corpn., Standard Chartered Bank and Federal Bank whose efficiency scores were 1.0000, indicating that they had operated on the efficiency frontier. The last quarter of least efficient banks in 2007 were State Bank of Saurashtra (0.92), State Bank of Bikaner and Jaipur(0.92), State Bank of India (0.92), State Bank of Mysore (0.91), SBI Comm. and Intl. Bank (0.91), IndusInd Bank (0.91), Bank of Rajasthan (0.91), Catholic Syrian Bank (0.89), Dhanalakshmi Bank (0.88), Kotak Mahindra Bank (0.87), Ratnakar Bank (0.87), ING Vysya Bank (0.8 6), Development Credit Bank (0.83) with the efficiency score ranging 0.89 to 0.92, indicating that it had to increase its output by 8 percent to 11 percent with the same amount of input to be able to operate on the efficiency frontier. 

In 2008, the average efficiency of Indian commercial banks via operation approach was marginally down from .9479 in 2007 to .9456. There were eight commercial banks which were considered to be efficient. They were IDBI Ltd., Federal Bank, Jammu and Kashmir Bank, Nainital Bank, SBI Comm. and Intl. Bank, Citibank, Union Bank of India and City Union Bank whose efficiency scores were 1.0000, indicating that they had operated on the efficiency frontier. The last quarter of least efficient banks in 2008 were Bank of Maharashtra (0.92), Lakshmi Vilas Bank (0.92), Central Bank of India (0.92), Axis Bank (0.92),Indus Ind Bank (0.91),ABN Amro Bank (0.90), Bank of Rajasthan (0.90), United Bank of India (0.90), Kotak Mahindra Bank (0.90), State Bank of Saurashtra (0.89), Catholic Syrian Bank (0.88), Dhanalakshmi Bank (0.87), ING Vysya Bank (0.86), Development Credit Bank (0.85) with the efficiency score ranging 0.89 to 0.92, indicating that it had to increase its output by 8 percent to 11 percent with the same amount of input to be able to operate on the efficiency frontier. 

After considering individual bank via operation approach during 2004-2008, the study results indicate that except IDBI bank there was no commercial bank which is considered to be efficient in every year. Jammu and Kashmir Bank was efficient in three out of five year period. There were no inefficient bank repeatedly in every year, eventually, State bank of Saurashtra and to some extent Catholic Syrian bank were the relatively least efficient bank during 2004-2008 due to its average efficiency score between 0.86 to 0.89. 

According to the summary results in Table V and Table VI, it is noticeable that Indian commercial banks are more efficient in Operation Approach than in intermediation approach. This result could reasonably yield the conclusion that during 2004-2008 the performance of Indian commercial banks in costs / revenues management is better than the performance in using labors and capitals to transform deposits into loans and investments. In other words, this result reflects that during 2004-2008 Indian commercial banks are capable of efficiently utilizing inputs of production such as labors and capitals to generate revenues; whereas they did not work efficiently as financial intermediaries of which the most important role is to intermediate between people who have an excess demand for funds and those who have an excess supply of funds. 

The reason for the lower efficiency in intermediation role of Indian commercial banks is probably the past experience with enormous Non-Performing Assets (NPAs) in almost every commercial bank. It does take almost a decade with the strong efforts of the government, the Bank of India and private sector to eliminate the NPAs from Indian banking sector. Undoubtedly, this terrible experience with NPAs problem causes Indian commercial banks more cautious in approving loans (specially public sector banks which dominate the banking industry in India), leading to too much liquidity situation in banking sector. This is because commercial banks are still unlimitedly and continuously collecting deposits from people; whereas it is harder for people to obtain loans from commercial banks. That is why the efficiency of Indian commercial banks via intermediation approach is not as high as the efficiency via operation approach. 

The analysis of relative efficiency of Indian commercial banks via Operation Approach and intermediation approach discussed above may lead to the question that "Why are Indian commercial banks considerably efficient in utilizing inputs to generate revenues from the perspective of costs/ revenues management despite the fact that they hardly lend but unlimitedly and continuously collect deposit?" (Loans are the major source of interest incomes, while deposits incur interest expenses for commercial banks.) The answer for this question is the gap between lending interest rate and saving interest rate. At this moment (February 20th, 2008), the average cost of fund during 2004-2008 is between 4 percent-6.5 percent. On the contrary, the average lending rate is not less than 8 percent-10 percent; whereas the interest rate for personal loan is incredibly high at the maximum of 20 percent per annum. Such a huge gap between saving and lending interest rate mentioned above leads to the efficiency in generating revenues even though the increase in loans approved is lower than the increase in deposits. 

5. Conclusion 

In this study, Data Envelopment Analysis (DEA) is utilized to analyze the relative efficiency of Indian commercial banks during 2004-2008. Overall, the analysis leads to the conclusion that the efficiency of Indian commercial banks during 2004-2008 via operation approach which investigates the efficiency of commercial banks from the perspective of costs / revenues management is very high and stable with the average efficiencies approximately 90 percent during 2004-2008. Nevertheless, the efficiency of Indian commercial banks during 2004-2008 via intermediation approach which evaluates the efficiency of commercial banks as intermediaries which use labors and capitals to transform deposits into loans and securities is moderately low but somewhat volatile with the average efficiencies about 70 percent during 2004-2008. Thus it is noticeable that Indian commercial banks are more efficient via Operation Approach than via intermediation approach during 2004-2008. The reason for the lower efficiency in intermediation role of Indian commercial banks is probably the terrible experience with NPAs problem in the past (especially public sector banks which dominates the banking industry in India). It does take nearly a decade with the strong efforts of the government, the Bank of India and private sector to eliminate the NPAs from Indian banking sector. 

Unquestionably, this experience causes Indian commercial banks more cautious and tougher in approving loans, leading to too much liquidity situation in banking sector. That is why the efficiency of Indian commercial banks via intermediation approach is not as high as the efficiency via operation approach. Even though the analysis via intermediation approach which investigates the efficiency of commercial banks as intermediaries utilizing labors and capitals to transform deposits into loans and investments suggests that it will be tough and complicated to obtain loans from commercial banks since they are highly cautious in approving loans. Finally the findings of the paper clearly suggests that the commercial banks which lies below the efficient frontier are required to increase their output efficiency but with proper risk and NPA's management. These banks can also increase their efficiency scores by becoming more cost efficient. Because more focus on output efficiency (aggressive lending at higher rate of interest to low credit rating customers) may lead to NPA's which will again be very damaging for banks. The recent proposal to merge the SBI associates with SBI and smaller banks into larger banks is a welcome step in this direction because this type of strategic measures can increase the efficiency level of those banks which are at lower efficiency levels. 

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