PSU banks outsmart private, foreign lenders in technical efficiency, shows SBI report

However, the takeover of certain weaker banks has impacted the efficiency and productivity of the acquiring banks.

A look into the performance through the last two decades shows that state-run banks have outsmarted their private peers and foreign lenders in terms of efficiency, a report by the State Bank of India showed.

The report said that the average technical efficiency of the banking industry (overall) stood at 81.21 percent from 2005-06 to 2022-23. The bank group-wise results for the period indicated that public sector banks (PSBs) are the leaders and operate at 82.76 percent, while private lenders are operating at 79.59 percent efficiency and foreign banks at 78.15 percent.

In the last 10 years, the Indian banking sector showed heightened resilience and survived several challenges in the domestic and global economic arena.

“The results show that contrary to popular perceptions, the performance of PSBs are much better than private and foreign banks,” SBI’s Group chief economic advisor Soumya Kanti Ghosh said. It also found that efforts by the government and the Reserve Bank of India (RBI) to bring efficiency and productivity to the banking sector have been successful.

However, the takeover of certain weaker banks has impacted the efficiency and productivity of the acquiring banks.

During the period, private banks were operating below the 80 percent level, which is primarily due to DCB Bank and IDFC First Bank, the report said. The research considers four study periods — FY06 to FY10, FY11 to FY18, FY19 to FY23 and the entire FY06 to FY23 period. It also noted that SBI has remained efficient and better than all the bank groups in all the four study periods.

“The PSBs were more efficient than private banks in all the (study) years except FY19 to FY23,” said Ghosh. The report said that this drop in efficiency may have been a result of merger and rationalisation of business, branches, and employees.