There was a paradigm shift in the competition scenario of the Indian commercial banking sector as a consequence of the initiation of banking sector reforms and opening up of the banking sector to the foreign participants in a gradual fashion. The present paper benchmarks the performance of public sector, private sector and foreign banks operating in India for the period 2006-07 to 2010-11 through a ‘Dynamic Slacks-Based DEA Model’. The study also computes factor efficiency indicator for the output and link variables.

Commercial banking in pre-independent India commenced with the establishment of British- owned foreign banks during the 1840s and 1850s, which was followed by several others as banks from countries like France, Germany, US and Japan entered the Indian market. Thus at the time of independence, foreign private sector banks occupied commanding heights of the Indian economy. However, during the first four decades of independent India, the relative importance of private sector banking in the Indian banking arena diminished considerably because of the adoption of a policy of promoting public sector banks. This policy continued up to the 1980s. Since 1991, financial sector reform was initiated in India and banking sector reform measures were an integral part of the whole process. In 1993, the Reserve Bank of India (India’s Central Bank) formulated guidelines for giving permission for the setting up of new private sector banks which were further revised in 2001. The operation of foreign banks also got a fresh boost in the post-1992 phase consequent on the commitments given by the Indian government (during the negotiations relating to Financial Services Agreement) to open up its banking sector to the foreign participants in a gradual fashion.

In this context, the present paper attempts to benchmark the performance of public sector, private sector and foreign banks in India using a dynamic Data Envelopment Analysis (DEA) model suggested by Tone and Tsutsui (2010).