A working paper by the Economic Advisory Council to the Prime Minister (EAC-PM) has found that public sector banks (PSBs) are more efficient than private sector and foreign banks in several recent years.
Study Covers 47 Banks
The paper was written by Soumya Kanti Ghosh, Part-time Member of EAC-PM and Group Chief Economic Advisor at State Bank of India, and Tapas Kumar Parida, an SBI economist.
The study examined 47 banks between FY2015 and FY2026. It included 12 public sector banks, 21 private sector banks and 14 foreign banks. Together, these banks account for more than 95% of the total assets of India’s banking system.
The researchers used Data Envelopment Analysis (DEA) to measure the efficiency and productivity of the banks. The efficiency score ranges from 0 to 1 and is shown as a percentage.
PSB Efficiency Improves Significantly
According to the paper, the efficiency of public sector banks increased to 93.12% in FY2026 from 72.46% in FY2020.
The paper linked this improvement to factors such as additional capital support and technology upgrades at some public sector banks.
It also noted that PSBs were generally more efficient than private banks, except during FY2019 to FY2022. The period may have been affected by bank mergers and changes in business operations, branches and workforce.
Private Banks Also Improve
Private sector banks also recorded an improvement in efficiency. Their efficiency increased to more than 86% in FY2026 from around 78% in FY2020. Foreign banks maintained efficiency levels of around 83% to 85% between FY2020 and FY2026.
The paper highlighted that public sector banks performed particularly well compared with private banks during the last three financial years, from FY2024 to FY2026.
SBI Leads Among Public Sector Banks
Among public sector banks, State Bank of India (SBI) recorded the highest efficiency score during the full FY2015-FY2026 study period, with a score of 97.49%. Bank of Maharashtra followed with an efficiency score of 90.49%. Among private sector banks, HDFC Bank recorded a score of 97.54%, followed by IDBI Bank at 96.51%.
Foreign Banks Perform Strongly
Among foreign banks, HSBC and JP Morgan recorded the highest efficiency scores in the study. For the overall FY2015-FY2026 period, JP Morgan and HSBC ranked first, followed by Citibank in third place, HDFC Bank in fourth and SBI in fifth. The paper said foreign banks generally perform well because of their business models.
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