Estimating a Bayesian stochastic frontier for the Indian banking system

This paper employs a Bayesian stochastic frontier, providing exact inference on both cost and profit efficiencies of the Indian banking sector in the period of 2000-2006. We also test for the inclusion of off-balance sheet data in model specification. The findings suggest that public banks are the most efficient, followed by private and foreign banks. However, the latter largely improved profit efficiency, outperforming domestic banks by the end of the sample. Accounting for off-balance sheet activities significantly improves profit efficiency levels.