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The IUP Journal of Bank Management
Branch-Level Efficiency and Decomposition of Assam Gramin Vikash Bank: An Indicative DEA Approach
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Branches act as foot soldiers for a bank as the bank’s business comes from its branches. Thus, it is of paramount importance to measure the efficiency at the branch level. The present study focuses on the level of efficiency at which the selected branches of Assam Gramin Vikash Bank (AGVB) operate and investigates the cost savings potentiality of these branches as against the best practice. Further, the study also identifies the determining factors of efficiency or inefficiency. The nonparametric Data Envelopment Analysis (DEA) model with Variable Returns to Scale assumption (BCC Model) is used to ascertain efficiency and Tobit regression model is used to estimate the determinants of efficiency. The results of the study revealed that on an average the branches operate at an efficiency level of 67% and there remains scope of cost saving potentialities to the tune of 33%. Factors like non-interest income, net interest income, employee cost and NPAs are found to negatively influence the efficiency, whereas size is found to have a positive impact on efficiency. Urban and semi-urban branches are found to be relatively more efficient than the rural branches.

 
 
 

Banking sector plays a pivotal role in the development of any economy. In India, time and again, various reform measures were initiated to strengthen this sector. All such measures emphasized on increasing the efficiency of banking operations and improving productivity. However, one thrust common to the banking sector across the transitional economies is to bring a large mass of population under the formal banking coverage. It is with this objective, the Regional Rural Banks (RRBs) were established in India. As a majority of the Indian population resides in rural areas, such banks bear tremendous potentialities to reach the rural unbanked inhabitants. This is of special significance in a region like northeast where a vast majority of population is greatly dependent on commercial banks and cooperative banks for meeting their banking requirements due to absence or limited presence of other types of financial intermediaries. RRBs since their inception have been playing a pivotal role in fostering balanced regional development through their wide network of bank branches. But, as in the case of any other financial institution, sound financial health of such institutions is also a precondition to effective participation in the process of financial intermediation. Furthermore, the mere spread of banking services across the length and breadth of a country is not adequate if there remains doubt about its sustainability. Thus, assessing the financial health and more specifically efficiency is important so as to gauge the future potentialities and sustainability of such institutions. Thus, the present study addresses this issue in the case of one of the RRBs operational in one of the northeastern state of India, i.e., Assam.

 
 
 
Bank Management Journal, Branch-Level Efficiency, Decomposition of Assam Gramin Vikash Bank, An Indicative DEA Approach