Efficiency Assessment of Regional Rural Banks in Uttarakhand

Abstract

Banking is very essential for the development of an economy. Regional Rural Banks are special financial institutions that were set up to serve the rural areas of India. Regional Rural Banks play a very important role in the upliftment of rural areas and rural economic development. To help the banks in executing this role of economic development, it is very important that its branches are efficient in converting inputs into valuable outputs. newlineThe purpose of this study is to assess the efficiency of regional rural bank of Uttarakhand at branch level. The efficiency assessment is followed by determining the factors that define the branch level efficiency of the bank. newlineThe research uses non-parametric technique of Data Envelopment Analysis for the assessment of branch level efficiency. The study uses Production approach while employing the DEA model. Further, the efficient branches were tested for the robustness of their scores based on the reference sets. The general trend in the efficiency of the branches was also measured using Malmquist Productivity Index. In the second phase of the study, determinants of efficiency were measured using Tobit Regression. newlineThe results of this research suggest that in general the branches of the regional rural bank in Uttarakhand need to cut down on their staff cost, operations cost and interest expenses. At the same time they must focus on increasing their interest and non-interest income and improving loans portfolio. Business volume, transaction volume, CD ratio, CASA percentage, branch age and local area competition were found to effect the branch level efficiency of the bank. newlineThe findings of this study will be helpful for the bank management in branch restructuring and identifying potential areas of improvement. The research also adds to the existing literature on branch efficiency. newline newline