Interval efficiency estimation using relational dynamic DEA approach: case of Indian banks

Data envelopment analysis (DEA) facilitates relative performance estimation of homogenous decision-making units (DMUs), whereas dynamic DEA pertains to intertemporal elements like carryovers for measuring DMUs' efficiencies over time. To enhance DMU's performance, there is a need to measure its efficiency with dynamic structure and further to determine input-output target points for making significant improvements in an inefficient DMU. Therefore, the present study proposes a relational dynamic DEA approach that comprises a dynamic structure in which periods are connected through good and bad links/carry-overs along with desirable and undesirable outputs and utilizes interval data. The system and period efficiency intervals are derived using a unique set of weights based on common weights methodology. Moreover, the relationship between the complement of the lower (upper) bound system and period efficiencies is established. Lastly, the input-output target points are suggested to improve DMUs in terms of upper-bound system efficiencies in a dynamic environment. To validate the usefulness of the proposed approach, a case study in Indian banks for the period 2017- 2021 is presented. This study investigates the impact of stressed assets (bad link/carryover) and loss due to non-performing assets (bad/undesirable output) on banks' dynamic efficiency. The results are compared with the static structure. The findings, targets, and implications of the study can assist bank experts and policymakers in formulating policies/strategies for further improvements.