The multi-criteria method, TOPSIS, is used with weights obtained using entropy function of information theory, to measure the metric efficiency ratings for Indian commercial banks on a (0, 1) scale. The bank-wise data comprising seven financial ratios is used from financial year 2001-02 to 2012-13 to rate and rank the banks. The hypotheses of equal and stable performance are tested. The findings reveal that the public sector, private sector and foreign banks do not differ in terms of average efficiency ratings but they differ from year to year. The non-performing assets and the business per employee are found to carry the highest weights.

With the opening up of Indian economy in 1992, many private sector and foreign banks appeared in the Indian banking scenario. The new banks took up the lead in technology mainly to cater to the needs of the fast growing Indian economy with an intention to grab a larger share of retail banking. After WTO agreement in 2002, the economy grew exponentially not just by volume but by dimensions too. A variety of new financial services became necessary due to the ever increasing international trade. The domestic financial markets introduced new financial products like derivatives. As a result, the public sector banks that were performing steadily under a secured but regulated environment had to face severe competition. As the market opened up, it became volatile that led to cases of frauds, and mismanagement, resulting in sickness of a few banks that were later on acquired or merged with other banks.

The relaxation in the norms for foreign direct investment was one of the major steps in the Indian banking. Due to this, all foreign investors in banks were given the voting rights, which could exceed the then existing cap of 10%. Later, it had gone up to 49% with some restrictions. A new era started for Indian commercial banks with the beginning of a new millennium. The business scenario became highly competitive and unpredictable.