This paper addresses the concerns regarding the sustainability of the banking sector in India prompted by the recent unintended high level of non-performing assets (NPAs). It uncovers the linkage between NPAs and banking efficiency by integrating NPAs into the measurement of bank efficiency to provide a holistic efficiency profile of the Indian banking sector. We apply the general two-stage data envelopment analysis of Kao [16] by incorporating NPAs as an exogenous output from the first stage, and the empirical results identify an efficiency gap of 16.2% due to NPAs in the Indian banking sector for the year 2016. Further, it also documents that the efficiency gap/loss is increasing over the years and differs according to the shareholding pattern of the banks.
CITATION STYLE
Hafsal, K., Suvvari, A., & Durai, S. R. S. (2020). Efficiency of Indian banks with non-performing assets: evidence from two-stage network DEA. Future Business Journal, 6(1). https://doi.org/10.1186/s43093-020-00030-z
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