Performance Modelling on Banking System: A Data Envelopment Analysis-Artificial Neural Network Approach
With changing banking environment, the efficiency of the operational function of bank is of critical importance and needs timely watch. Apart from measuring the operational performance of banks using DEA approaches, the banking sector today is more inclin
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and Supriyo Roy(&)
Department of Management, BIT Mesra, Ranchi, India [email protected]
Abstract. With changing banking environment, the efficiency of the operational function of bank is of critical importance and needs timely watch. Apart from measuring the operational performance of banks using DEA approaches, the banking sector today is more inclined to predictive analytics to identify their future performance and improve their competitiveness well in advance. In this sequel, the present paper proposes hybridisation of Data Envelopment Analysis and Artificial Neural Network Approaches for operational performance measurement and prediction for Indian banks using the five-year (2015 to 2019) dataset. Non-oriented non-radial DEA model is adopted in the present study, attempting to provide decision-makers the discretion to identify slacks in performance by maximising outputs and minimising inputs. This can identify causes of inefficiency and suggest necessary steps for improvement. In addition to DEA findings, the paper performs prediction task for obtained efficiency scores. Finding of will be advantageous for policymakers, managers of banking industry for predicting future operational performance of banks until they are able to make required changes for its improvement. Keywords: Data envelopment analysis Artificial neural network Operational performance Efficiency Banking
1 Introduction Banking system holds immense significance in any countries economy upliftment (Bhattacharya et al. 1997). With advancement of digital banking, the competition between banks have only risen further. Banks are constantly under pressure to improve performance to withstand the change (Reserve Bank of India 2018). As a result, the performance analysis of banks has become integral issue for management concerned. Top managers are constantly putting effort to identify inefficiencies to eliminate them to achieve competitive advantage and face challenges. Moreover, operation risk management is pertinent to any commercial banks to ensure operation effectiveness and competitiveness. How to improve the operational performance of commercial banks has become an emerging question that commercial banks now faces prominently. The basic research question boils down to: the need for performance evaluation to measure, improve and predict the operating efficiency levels of banking system. © IFIP International Federation for Information Processing 2020 Published by Springer Nature Switzerland AG 2020 S. K. Sharma et al. (Eds.): TDIT 2020, IFIP AICT 617, pp. 581–597, 2020. https://doi.org/10.1007/978-3-030-64849-7_52
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Preeti and S. Roy
Traditionally, the bank managers made use of multiple ratios to analyse different aspects of banking operations. However, ratios are subjected to limited information while making economies of scale assumptions, framing benchmarking policies or estimating overall performance of banks (Yeh 1996). Alternatively, frontier approaches as opposed to ratio approaches, allows objective measurement of performance within
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