This study attempted to evaluate the efficiency of Indian commercial banks working on Indian soil. The working environment of a bank may affect due to internal and external factors. The nonperforming assets ratio (Net NPAs/Net Advances) is an indicator variable used to measure the effect of internal and external factors. This study proposed environmental DEA models to assess the impact of internal and external factors and scale inefficiency. The results have shown that the effect of the NPA ratio is statistically significant on the efficiency of public and private sector banks. The study reveals that the proposed environmental DEA models accounted for the risk efficiency. Also, these environmental DEA models effectively controlled the spread of the efficiency scores. Overall the public and private sector banks improved their efficiency scores after eliminating the risk and scale inefficiencies.

Keywords : Environmental DEA Models, Risk Efficiency, Bank Efficiency, Nonperforming Assets, Scale Inefficiency, Environmental Efficiency.