Measuring technical efficiency of banks vis-à-vis demonetization: an empirical analysis of Indian banking sector using CAMELS framework

The present paper examines the banking industry’s technical efficiency for the pre-and post-demonetization period, using the case of India. A two-stage analysis has been employed based on balanced panel data over the period 2015–2018 for 56 commercial banks in the Indian context. First, Data Envelopment Analysis (DEA) measure is used to evaluate the technical efficiency of the sampled banks. In the second stage, Tobit regression is applied to regress all bank-specific factors on the technical efficiency of Indian banks, using the CAMELS framework. The findings of DEA analysis suggests that the Indian banking industry, in general, was on a constant efficiency trend during the period of study. However, individual bank-level analysis delineates that the public banks report the highest overall average efficiency score followed by foreign banks and private banks, respectively. The results of Tobit regression suggest the superior performance of the Indian banks in the post-demonetization period. This study provides an insight to the promoters, regulators, policymakers and bankers to assess the viability of the Indian banking sector. It implies that the consolidation of inefficient banks will bring positive synergies and might provide a cushion to an emerging economy like India. © 2022, The Author(s), under exclusive licence to Springer Nature B.V.