Examining the off Balance Sheet Exposure and Efficiency of Indian Commercial Banks – A DEA Approach

  • Kompalli Sasi Kumar Associate Professor-Finance and Accounting, GITAM-Hyderabad Business School (HBS), GITAM Deemed to be University, Rudraram, Patancheru Mandal, Sangareddy (Dist.,), Hyderabad
Keywords: Off Balance Sheet Exposures, Constant Returns to Scale, Variable Returns to Scale, Technical Efficiency, Cost Efficiency, Input-Output Orientation


The study examined the exposure and efficiency of select public and private sector banks towards off balance sheet items by
applying Data Envelopment Analysis (DEA) on the key financial performance ratios of banks. The study covered a period of 5
years ranging from 2013 to 2017 and conducted a year wise analysis. The study selected 20 different type of variables (financial
variables) for building Input –Output Model to test DEA for examining efficiency. These variables are acting as proxy variables
for indicating the effect of Off balance sheet exposures on the financial health of the business. These variables are extracted from
the financial statements of respective banks on a year on year basis and required adjustments are done. The study investigated the
Off balance sheet exposures in the areas of Foreign Exchange Transactions, Guarantees, Acceptance and Endorsements etc., The
proxy variables, so identified for the study are employed for understanding various efficiencies of banks like scale efficiencies
involve Constant Returns to Scale (CRS), Variable Returns to Scale (VRS) and average efficiencies like Technical Efficiency
(TE), Cost Efficiency (CE), Allocative Efficiency (AE). The study find out that throughout the study period, the select banks
exhibited constant returns to scale, except CUB and AXIS Bank in the first year of study (2013) displayed increasing returns to
scale due to heavy exposures. In the category of efficiency parameters, AXIS Bank and CUB are displaying lower efficiencies in
the segment of private sector banks and Andhra Bank and OBC exhibiting lower efficiencies in the segment of public sector
banks. Here lower efficiencies with references to cost savings aspects and output generation, this may be due to their scale of
operations in the industry. The study concluded that large banks are exhibiting highest efficiencies than compared to small banks
operating in the industry. This is definitely an area for further research to the industry and researchers to examine the direct effect
of Off balance sheet transactions (IFRS amendments in this direction only), so that credit risk can be reduced considerably in the
business. So that business houses can take up calculated risk in the international markets.