Performance Evaluation of Banks in India – A Shannon-DEA Approach

  • A. R. JAYARAMAN Reserve Bank of India
  • M. R. SRINIVASAN University of Madras
Keywords: Shannon’s Entropy, Cost Efficiency, Revenue Efficiency, Profit Efficiency, DEA, Banking, Ranking.

Abstract

Data Envelopment Analysis (DEA) is widely used in banking sector to measure the efficiency of the banks. This paper evaluates the performance of the banks in India using cost, revenue and profit models of DEA and comes out with a comprehensive efficiency index for banks, by combing the efficiency scores of various DEA models, using the Shannon entropy. In general, the banks included in this study are sound in terms of total assets, manpower, branch network etc., and they have been ranked based on their performance, which depends on optimal utilization of select variables. In order to measure the degree of agreement between rankings of banks based on three different models, namely cost, revenue and profit model, Kendall’s coefficient of concordance have been used. The study observes that Shannon-DEA approach provides a comprehensive efficiency index for banks and a reasonable way of ranking.

Published
16-10-2019
Section
Articles