Financial Efficiency Dynamics of Indian Public Sector Banks Before and After the 2020 Merger: An Empirical Study Using Data Envelopment Analysis

Abstract

The 2020 mega-merger of Corporation Bank and Andhra Bank with Union Bank of India represented a major structural reform in the Indian banking sector. Although consolidation was expected to strengthen capital structure and enhance performance, empirical evidence on whether efficiency improved remains limited. This study evaluates the financial efficiency of the three banks over an eleven-year period using a non-parametric Data Envelopment Analysis (DEA) approach, distinguishing between the pre-merger (2015–2019) and post-merger (2020–2025) phases. Deposits and operating expenses were treated as input variables, while advances, total income, and adjusted net profit were considered output variables. The VRS/BCC model revealed variation in technical efficiency, with several pre-merger years exhibiting full efficiency and the early post-merger period showing reduced efficiency before later improvement. Conversely, the CRS/CCR model yielded zero efficiency scores across all decision-making units, indicating the absence of scale efficiency throughout the study period. The findings suggest that the merger did not result in immediate efficiency enhancement and that the realisation of synergy depends on sustained expansion of lending, revenue, and profitability. The study contributes to merger literature by providing long-horizon DEA-based evidence on financial performance in the Indian public banking system.