Profit efficiency and determinants of Indian banks; A truncated bootstrap and data envelopment analysis

Figures & data

Figure 1. Inefficiency measurement in deterministic and stochastic approaches

Table 1. Descriptive statistics of profit efficiency variables (In Billion Rupees)

Description	Min.	Max.	Mean	Std. Dev.
Public Sector Bank
Funds	28,858	58,875	43,693	11,927
Fixed Assets	282	380	339	36
Investments	7,645	14,776	11,417	2,792
Earning Advances	17,136	37,704	26,942	8,174
Other Income	329	490	436	65
Private Sector Banks
Funds	8,225	15,502	11,212	2,943
Fixed Assets	80	123	99	20
Investments	2,469	4,824	3,403	949
Earning Advances	4,513	8,812	6,296	1,740
Other Income	156	237	192	30
Foreign Sector Banks
Funds	3,708	5,936	4,697	827
Fixed Assets	40	52	48	5
Investments	1,009	2,026	1,526	385
Earning Advances	1,649	2,340	1,861	304
Other Income	100	150	117	19

Table 2. Results of DEA and Wilcoxon–Mann–Whitney test for different bank groups

Banks	2008	2009	2010	2011	2012
Average Profit Efficiency (APE) of public sector banks
Large public sector (LPUS)	85%	82%	89%	88%	78%
Medium public sector (MPUS)	77%	79%	65%	62%	61%
Small public sector (SPUS)	75%	74%	82%	84%	84%
Standard deviation of APE of public sector banks
Large public sector	0.16	0.12	0.09	0.08	0.15
Medium public sector	0.17	0.16	0.19	0.21	0.20
Small public sector	0.17	0.13	0.16	0.14	0.16
Average profit efficiency of private sector banks
Large private sector (LPRS)	37%	45%	53%	70%	71%
Medium private sector (MPRS)	52%	69%	51%	61%	70%
Small private sector (SPRS)	50%	53%	45%	62%	67%
Standard deviation of APE of private sector banks
Large private sector	0.43	0.39	0.36	0.27	0.29
Medium private sector	0.25	0.24	0.25	0.24	0.26
Small private sector	0.41	0.34	0.35	0.33	0.30
Average profit efficiency of foreign banks
Large foreign sector (LFS)	74%	72%	78%	96%	100%
Medium foreign sector (MFS)	30%	41%	26%	44%	46%
Small foreign sector (SFS)	23%	37%	46%	49%	54%
Standard deviation of APE of foreign banks
Large foreign sector	0.19	0.21	0.24	0.05	0.00
Medium foreign sector	0.36	0.38	0.29	0.36	0.39
Small foreign sector	0.43	0.41	0.31	0.41	0.38
Wilcoxon–Mann–Whitney test	2008–2012
SPUS vs SPRS	Significant
SPUS vs SFS	Significant
SFS vs SPRS	Insignificant
MPUS vs MPRS	Insignificant
MPUS vs MFS	Significant
MFS vs MPRS	Significant
LPUS vs LPRS	Significant
LPUS vs LFS	Significant
LFS vs LPRS	Insignificant

Figure 2. APE scores and trend of the standard deviation of different bank groups

Table 3. Second stage results

	Tobit			Truncated Bootstrapped
Explanatory Variable	Coefficient	Std. Error	Sig.	“Bias-corrected” Coefficient	Std. Error	Sig.
SOP	−0.0000024	0.0000004	0.000003***	−0.00000007	0.0000005	0.00006***
EA	−2.597299	0.555484	0.000011***	−0.00143251	0.6065454	0.00015***
ROA	13.52072	5.092699	0.009569***	−0.8689815	4.661312	0.02092**
NB	0.000369	0.000071	0.000001***	0.00001170	0.000074	0.00003***
CAR	−0.002854	0.004178	0.496436	0.00034235	0.003657	0.53840
Ownership Effects
LFS	98.001	23.376	0.0002368***	89.021	22.321	0.0002211***
LPRS	−0.32842	0.10264	0.0033200***	0.31291	0.81234	0.0029100***
LPUS	−0.51153	0.31309	0.1131110	−0.49233	0.28254	0.0921110*
MFS	−0.43806	0.12875	0.0019675***	0.41306	0.11324	0.0018522***
MPRS	−0.40918	0.083019	0.0000309***	0.39087	0.072053	0.0000299***
MPUS	−0.52697	0.20054	0.0935950*	−0.43675	0.19844	0.0946233*
SFS	−0.36523	0.20722	0.0885243*	0.33533	0.19832	0.0896423*
SPRS	−0.35649	0.093247	0.0006454***	0.33254	0.085327	0.0006130***
SPUS	−0.39142	0.16139	0.0217492**	0.27833	0.13247	0.0109243**
GDPGR	116.8161	28.62618	0.000105***	−0.0012368	0.013405	0.38713
HHI	0.033312	0.014522	0.024424**	−2.2925870	26.63052	0.00075***

* Significance at the 10% confidence interval, ** Significance at the 5% confidence interval, *** Significance at the 1% confidence interval.

Table

Public Sector Bank	2012	2011	2010	2009	2008	Trend X
Interest Earned	4,708	3,555	2,940	2,620	2,030	2.32
Other Income	490	466	476	417	329	1.49
Total Income	5,218	4,041	3,436	3,058	2,379	2.19
Interest expended	3,186	2,242	2,030	1,845	1,410	2.26
Employee Expenses	560	536	401	336	276	2.03
Other Expenses^1	598	434	291	242	201	2.98
Total Expenses	4,542	3,387	2,877	2,556	1,999	2.27
Reported Net Profit	482	437	381	334	255	1.89
Shareholder’s Funds	3,484	2,823	2,342	2,030	1,692	2.06
Deposits	48,772	42,604	35,611	29,950	23,429	2.08
Borrowings	4,494	3,874	3,049	2,497	1,451	3.10
Investments	14,776	13,101	11,788	9,773	7,645	1.93
Advances	37,704	32,145	26,012	21,713	17,136	2.20
Total Assets	58,875	51,602	42,866	36,265	28,858	2.04
ROE	13.84%	15.48%	16.27%	16.43%	15.09%	15.42%^
ROA	0.82%	0.85%	0.89%	0.92%	0.88%	0.87%^
Private Banks
Interest Earned	1,226	879	742	767	622	1.97
Other Income	237	196	190	179	156	1.52
Total Income	1,463	1,075	932	946	778	1.88
Interest expended	789	518	455	512	425	1.86
Employee Expenses	131	107	80	74	59	2.23
Other Expenses^1	138	123	143	141	118	1.18
Total Expenses	1,163	839	756	801	663	1.75
Reported Net Profit	211	165	122	99	86	2.46
Shareholder’s Funds	1,486	1,300	1,117	925	831	1.79
Deposits	10,549	9,020	7,230	6,447	5,750	1.83
Borrowings	2,504	1,804	1,444	1,334	848	2.95
Investments	4,824	3,838	3,162	2,722	2,469	1.95
Advances	8,812	7,288	5,683	5,182	4,513	1.95
Total Assets	15,502	12,797	10,331	9,204	8,225	1.88
ROE	14.17%	12.66%	10.94%	10.72%	10.31%	11.76%^
ROA	1.36%	1.29%	1.18%	1.08%	1.04%	1.19%^
Foreign Banks
Interest Earned	365	290	268	307	249	1.47
Other Income	110	111	100	150	114	0.96
Total Income	475	401	368	457	363	1.31
Interest expended	154	109	92	131	110	1.40
Employee Expenses	59	55	48	49	43	1.37
Other Expenses^1	57	63	107	101	57	1.00
Total Expenses	313	268	285	322	246	1.27
Reported Net Profit	95	77	47	75	66	1.43
Shareholder’s Funds	926	816	687	588	495	1.87
Deposits	2,823	2,457	2,364	2,174	1,969	1.43
Borrowings	1,212	934	687	767	586	2.07
Investments	2,026	1,673	1,612	1,312	1,009	2.01
Advances	2,340	1,990	1,661	1,665	1,649	1.42
Total Assets	5,936	4,975	4,399	4,468	3,708	1.60
ROE	10.22%	9.46%	6.77%	12.75%	13.40%	10.5%^
ROA	1.59%	1.55%	1.06%	1.68%	1.79%	1.53%^

¹Other expenses included provisions and contingencies, ^ Average

Table

Input Variables	Output Variables
1. Fund (x1)	1. Investments (y1)
A. Deposits	A. Government securities and other approved securities
a. Demand Deposits	B. Equity Shares
b. Saving Deposits	C. Debenture and bonds/Preferred shares
c. Term Deposits	D. Subsidiaries
B. Borrowing	E. Other Investments
a. RBI/Interbank	2. Earning Advances [NPA adjusted advances (y2)]
b. Outside India	3. Other Income
2. Number of Employee (x2)	Output Prices
3. Fixed Assets (x3)	1. Price of Investment (q1)
Input Prices	2. Price of advances (q2)
1. Price of funds (p1):
2. Price of the labour (p2)
3. Price of the Fixed Assets + Depreciation (p3)

Source: Ray and Das (2010)

Table

Particulars	Min.	Max.	Mean	Std. Dev.
SPUS (5 Banks)
APE	.74	.84	.7980	.04491
SOP	43,174.72	152,159.55	98,272.71	27,984.42
EA	.0208	.0523	.038544	.0074239
ROA	.0027	.0126	.006850	.0023738
NB	940	1680	1278.36	227.768
CAR	10.85	14.35	12.5760	.91202
GDPGR	4.47	8.91	7.0760	1.62806
HHI	.0007	.0031	.00166	.0008958
SPRS (5 banks)
APE	.45	.67	.5540	.08180
SOP	1686.86	182,684.13	33,098.43	50,596.09
EA	.0058	.2244	.035076	.0442148
ROA	−.0148	.0179	.004648	.0076471
NB	9	385	212.20	122.513
CAR	9.2100	56.4100	18.3816	12.8752
GDPGR	4.47	8.91	7.0760	1.62806
HHI	.0007	.0031	.001660	.0008958
SFS (6 banks)
APE	.23	.54	.4180	.11093
SOP	30.67	132,422.53	4834.435	24,104.19
EA	.0003	.4690	.243797	.1280386
ROA	.0039	.1045	.035434	.0236041
NB	1	2	1.43	.504
CAR	23.09	109.03	54.82	20.326
GDPGR	4.47	8.91	7.0760	1.62243
HHI	.0007	.0031	.001660	.0008927
MPUS (11 Banks)
APE	.61	.79	.6880	.07723
SOP	83,674.94	400,751.02	210,521.976	76,022.54
EA	.0237	.0750	.049796	.0123955
ROA	.0023	.0153	.008386	.0030774
NB	499	4011	1997.18	793.512
CAR	9.39	15.37	12.89	1.066
GDPGR	4.47	8.91	7.0760	1.60986
HHI	.0007	.0031	.001660	.0008858
MPRS (10 Banks)
APE	.51	.70	.6060	.08147
SOP	10,962.02	639,168.15	83,228.45	118,909.58
EA	.0022	.0696	.016881	.0223942
ROA	.0032	.0175	.011785	.0033894
NB	47	5670	604.04	908.003
CAR	11.9100	22.4600	15.014400	2.5224948
GDPGR	4.47	8.91	7.0760	1.61136
HHI	.0007	.0031	.001660	.00088
MFS (11 Banks)
APE	.26	.46	.3740	.08013
SOP	649.73	39,292.99	10,942.09	9664.39
EA	.0046	.7728	.167077	.1356225
ROA	−.0267	.0421	.016632	.0122865
NB	1	400	25.43	82.371
CAR	11.80	87.250	23.937	14.94
GDPGR	4.47	8.91	7.0760	1.60986
HHI	.0007	.0031	.001660	.0008858
LPUS (4 banks)
APE	.78	.89	.8440	.04135
SOP	258,735.45	673,363.24	432,990.71	132,568.709
EA	.0477	.0603	.056097	.0035249
ROA	.0063	.0133	.010267	.0020682
NB	2675	5670	3645.45	864.720
CAR	11.95	15.38	13.4635	.95327
GDPGR	4.47	8.91	7.0760	1.63660
HHI	.0007	.0031	.001660	.0009005
LPRS (4 banks)
APE	.37	.71	.5520	.13832
SOP	22,703.43	509,227.62	266,601.18	161,513.31
EA	.0014	.0174	.004320	.0042040
ROA	.0098	.0153	.012632	.0015265
NB	117	2752	1243.85	845.252
CAR	12.6500	20.6000	16.058000	2.3106267
GDPGR	4.47	8.91	7.0760	1.63660
HHI	.0007	.0031	.001660	.0009005
LFS (4 banks)
APE	.72	1.00	.8400	.11965
SOP	7459.81	119,534.71	70,906.12	36,366.18
EA	.0056	.1048	.036645	.0245881
ROA	.0054	.0240	.015464	.0054831
NB	2	95	49.85	30.672
CAR	10.590	18.150	14.618	2.738
GDPGR	4.47	8.91	7.0760	1.63660
HHI	.0007	.0031	.001660	.0009005

Table

Author	Inputs	Outputs	Approach	No. of bank	Efficiencies
Bhattacharyya et al. (1997)	Interest Expense, Operating Expense	Advances, Investments and Deposits	Production Approach	70	Technical Efficiency
Saha and Ravisankar (2000)	Branch (number of branches), staff (number of employees), establishment expenditure, non-establishment expenditure (excluding interest expenditure).	Deposits, advances, investments, spread, total income, interest income, non-interest (fee based) income and working funds	Production Approach	25	Technical Efficiency
Das (2000)	Deposits, borrowings, and number of employees.	Margin and commission	Inter-mediation Approach	74–90	Technical Efficiency
Sathye (2003)	Deposits, staff numbers, interest expenses, non-interest expenses	Net interest income, Non-Interest (fee based) income, net loans	Inter-mediation Approach	94	Technical Efficiency
Kumar (2008)	Physical capital, labour and loanable funds.	Spread and non-interest (Fee based) income.	Inter-mediation Approach	27	Technical Efficiency
Mohan and Ray (2004)	Labour, Loanable fund,	Net-interest margin, Commission, exchange, brokerage,	Inter-mediation Approach	58	Technical Efficiency
Das, et al., (2005)	Borrowed funds, Staff, Fixed assets, Equity	Investments, performing loan assets, Other non-interest fee-based income.	Inter-mediation Approach	68–73	Technical Efficiency
Chakrabarti et al (2008)	Model-A, Interest expenses, Operating expense Model -B, Interest, Non-interest Exp.	Model A, Advances, Investments, Deposits Model B, Interest income, Non-interest income	Production Approach & Inter-mediation Approach	70	Technical Efficiency
Debasish (2006)	Total deposits received, Total liabilities, Labour related administrative costs, Capital related administrative cost, Operating Expenses, Fixed Assets, Total borrowings, Net worth, Net NPA	Total Loan, Total Investment, Net Profit, Interest and Related Revenues, Short term securities, Net Interest Margin	Inter-mediation Approach	93	Technical Efficiency
Ray (2007)	Borrowed funds, Labour, Physical capital, Equity	Credit, Investments, Other income	Inter-mediation Approach	68-71	Technical Efficiency
Sahoo and Tone (2009)	Capital, Labour, Non-financial inputs, Borrowed fund, no of employee, fixed assets	Deposits, Advances, Services, Investments, Performing Loan Assets, Non-Interest Fee-Based Income.	Production Approach	78	Technical Efficiency
Bodla and Bajaj (2010)	Interest Expenses, Operating or Non-Interest Expenses and NPAs ratio, i.e., net NPA to net advances	Deposits, Advances and Investments	Production Approach	29	Technical Efficiency
Ray and Das (2010)	Fund (deposits+ borrowings), employee, fixed assets	Investment, earning advances, Non-Interest, other income	Assets approach	94	Profit Efficiency

Table

Public Sector Banks	Short Forms
Allahabad Bank	ALB	ING Vysya Bank Ltd.	INGV
Andhra Bank	ANB	Kotak Mahindra Bank Ltd.	KMB
Bank of Baroda	BOB	Tamilnad Mercantile Bank Ltd.	TMB
Bank of India	BOI	The Catholic Syrian Bank Ltd.	CSB
Bank of Maharashtra	BOM	The Dhanalakshmi Bank Ltd.	DB
Canara Bank	CB	The Federal Bank Ltd.	FB
Central Bank of India	CBI	The Jammu & Kashmir Bank Ltd.	JKB
Corporation Bank	CoB	The Karnataka Bank Ltd.	KB
Dena Bank	DB	The Karur Vysys Bank Ltd.	KVB
IDBI Ltd	IDBI	The Lakshmi Vilas Bank Ltd.	LVB
Indian Bank	IB	The Ratnakar Bank Ltd.	RB
Indian Overseas Bank	IOB	The South Indian Bank Ltd.	SIB
Oriental Bank of Commerce	OBC	YES Bank	YES
Punjab & Sind Bank	PSB	Foreign Banks	Short Forms
Punjab National Bank	PNB	AB Bank Ltd.	ABB
State Bank of Bikaner & Jaipur	SBBJ	Abu Dhabi Commercial Bank Limited	ADCB
State Bank of Hyderabad	SBH	Bank of America NA	BA
State Bank of India	SBI	Bank of Ceylon	BC
State Bank of Mysore	SBM	Barclays Bank PLC	BB
State Bank of Patiala	SBP	BNP Paribas	BNP
State Bank of Travancore	SBT	Citibank NA	CITI
Syndicate Bank	SB	DBS Bank Ltd	DBS
UCO Bank	UCO	Deutsche Bank AG	DB
Union Bank of India	UBI	JP Morgan Chase Bank	JPM
United Bank of India	UnBI	Krung Thai Bank Public Company Limited	KTBPC
Vijaya Bank	VB	Mashreqbank psc	MB
Private Sector Bank	Short Forms	MIZUHO Corporate Bank Ltd.	MCB
Axis Bank Ltd	AB	Oman International Bank S.A.O.G.	OIB
City Union Bank Ltd.	CU	Shinhan Bank	SB
Development Credit Bank	DCB	Societe Generale	SC
HDFC Bank Ltd.	HDFC	Standard Chartered Bank	SCB
ICICI Bank Ltd.	ICICI	The Bank of Nova Scotia	BNS
Indusind Bank Ltd.	IB	The Bank of Tokyo-Mitsubishi UFJ Ltd.	BTM
		The Hongkong and Shanghai Banking Corporation Ltd.	HSBC
		The Royal Bank of Scotland NV	RBS

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