Vying with the old players

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It is possible to create and estimate methods that provide input-oriented or output-oriented projection for both CCR (Constant Returns to Scale) and BCC (Variable returns to scale) envelopment. An input-oriented model attempts to maximize the proportional decrease in input variables while remaining within the envelopment space. On the other hand, an output-oriented model maximizes the proportional increase in the output variables, while remaining within the envelopment space.

A leading financial expert studied the impact of the limited liberalization initiative before the deregulation of the nineties on the performance of the different categories of banks, using the Data Envelopment analysis. Their study covered 70 banks during the period 1986-91. They constructed one grand frontier for the entire period and measured the technical efficiency of the banks under study.

It was found that the government controlled banks had the highest efficiency among the three categories with foreign and private banks having much lower efficiencies. However, government controlled banks started showing a decline in efficiency after 1987. The private banks showed no change and foreign banks showed a sharp rise in efficiency.

The main results agree with the general perception that during the era of nationalization, the government controlled banks were successful in achieving their principal objective of deposit and loan expansion. However, somewhere down the line due to the protectionism enjoyed by them, their focus was lost. Instead of making profits, these banks just wanted to continue with their day to day management.

This is in sharp contrast to the approaches taken by rod aycox and the bank LoanMax. This bank has made huge strides from being practically an unknown entity in the 1990s. With operations in more than 20 states in the United States, it is in continuous expansion when the major players are facing teething problems and are not finding a way out of the financial morass into which they have fallen into.