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Adequacy of deterministic and parametric frontiers to analyze the efficiency of Indian commercial banks

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  • Silva, Thiago Christiano
  • Tabak, Benjamin Miranda
  • Cajueiro, Daniel Oliveira
  • Dias, Marina Villas Boas

Abstract

This study applies data envelopment analysis and the stochastic frontier approach to a sample of Indian commercial banks to discuss the inconsistencies between these models. We find that DEA average efficiency scores are, in general, lower than those from the SFA model. However, both models indicate similar trends on efficiency scores over the years, which we state is more relevant than efficiency levels themselves. We also find that the rank correlation between these efficiency scores is low. This means that the application of only one frontier model may yield misleading conclusions. We point out that a thorough consideration of the suitability of a deterministic or a parametric frontier to the framework in analysis should guide the choice between the application of parametric or non-parametric methodologies.

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  • Silva, Thiago Christiano & Tabak, Benjamin Miranda & Cajueiro, Daniel Oliveira & Dias, Marina Villas Boas, 2018. "Adequacy of deterministic and parametric frontiers to analyze the efficiency of Indian commercial banks," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 506(C), pages 1016-1025.
    • Handle: RePEc:eee:phsmap:v:506:y:2018:i:c:p:1016-1025
    DOI: 10.1016/j.physa.2018.04.100
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    1. Benjamin Miranda Tabak & Thiago Christiano Silva & Ahmet Sensoy, 2019. "Financial Networks 2019," Complexity, Hindawi, vol. 2019, pages 1-2, December.

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    Keywords

    Bank efficiency; Stochastic frontier approach; Data envelopment analysis;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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