The objective of this paper is to analyze the operating efficiency of Indian scheduled commercial banks, using the data released by the Reserve Bank of India. For analyzing the performance of banks, various statistical methods such as average, standard deviation, standard error, lower bound and upper bound were used. In addition, ANOVA test was applied at 95% level of confidence for testing significant difference amongst the cost of fund, return on fund and operational efficiency through SPSS software. The study reveals that cost of fund of all the scheduled commercial banks was significantly different. Since the cost structure is different for the same work, it implies that the operational efficiency caused the difference and the foreign banks emerged as the most efficient financial institutions, followed by private and public sector banks. However, it was also observed that the difference was not significant in the case of return on advance, return on investment and return on fund. Moreover, foreign banks were found to be most efficient, followed by private sector and public sector banks.

The financial system of India is complex with a large network of different banks. The banking industry is the core segment of the economy and plays a key role in the progress of the entire economy. The activities of modern economies are significantly influenced by the functions and services of banks and it has become an indispensable part of the socioeconomic life of the people. New age banks not only accept the deposits from the public and deploy large amounts of public funds in a fiduciary capacity, but also leverage such funds through the process of credit creation. The Indian banking system comprises two groups: scheduled banks and non-scheduled banks. Scheduled banks are those banks which are included in the second schedule of the Banking Regulation Act, 1965, i.e., meeting the conditions prescribed in the schedule. The banks which are not included in the said schedule are considered as non-scheduled banks.

Indian banking sector has undergone major reforms. In 1969, 14 major banks were nationalized and six major private sector banks were also brought under the ambit of government, but those banks whose deposits were less than 50 cr were not nationalized. Nationalization of commercial banks was a forward step to take the banks to rural areas and extend the agenda of financial inclusion to remote areas. After nationalization, there was a shift of emphasis from industry to agriculture. The country experienced a rapid expansion in bank branches across the country (urban and rural areas). Development of banks after liberalization was unprecedented and appreciated at the international level. The commercial banking system attained a considerable strength to revolutionize nation building programs, but on the other hand, the nationalization process led to other problems like excessive bureaucratization, red-tapism and disruptive tactics of trade unions by bank employees.