Data Envelopment Analysis based Efficiency Measurement of Urban Cooperative Banks

Cooperative Banks make an important contribution to the economy by increasing the reach of the formal banking channels to the hitherto unbanked or under banked sections of society and thereby playing a significant role in financial inclusion. In performing this function their profitability may be affected and in some cases their solvency might also be threatened. Therefore, it is important that they need to maintain sound financial condition which necessitates the scrutiny of their financial health on regular basis. In this paper the relative efficiency of Urban Cooperative Banks (UCBs) has been measured using the Data Envelopment Analysis. The study is based on 48 UCBs and has used input-oriented variable return-to-scale model to rank the best bank and then benchmark the rest against the best. The result shows that only one bank is found to be efficient while the efficiency score of top 10 UCBs ranged from 0.83 to 1. Further, correlation studies were also performed between the efficiency score and financial inclusion determinants to determine whether bank's efforts towards financial inclusion lead to any loss in efficiency. Interestingly, the result shows that there is no adverse effect on efficiency of banks while being involved in increasing activities on financial inclusion.