A Comparative Study of Banking Sectors of Pakistan and India: An Application of Data Envelopment Analysis

Abstract

The main aim of this paper is to investigate the efficiency, change in productivity, and the sources of efficiency in the commercial banking sector of Pakistan and India. For this purpose, the performance analysis has been referred to, so as to verify the core-essence of the technical gains in efficiency, the role of managerial practices adopted, and the utilization of resources by the banking sectors in these two jointly bordered countries of South Asia. The time span that has been referred to for this study, spans from 2013 to 2017. Therefore, the Data Envelopment Analysis (DEA), equipped with its two basic models, which serve the input orientation and Malmquist Productivity Index (MPI) have been used, in order to submit the findings of this study. As compared to the situation in Pakistan, during the time span that has been taken into consideration for the purpose of this study, the Indian banking sector has been able to maintain higher scores, in the three levels of efficiency measures that have been observed. Moreover, the returns to scale analysis suggests that the banks operate at Constant Returns to Scale (CRS), or Increasing Return to Scale (IRS), thus making a positive contribution towards the average efficiency gains. Whereas, the banks that have been functioning at Decreasing Returns to Scale (DRS) happen to cause a decline in the efficiency measures. As far as productivity is concerned, both the countries have shown a positive improvement in the Total Factor Productivity (TFP), over the years. In a gist, the three levels of efficiency, and their sources of inefficiencies, make up the extract of the study. These findings should ideally be focused upon by the managers, practitioners, and policymakers, particularly while designing their operational strategies.