Mumbai: A study by State Bank of India has said that public sector banks (PSBs) in India outperform private sector banks in terms of efficiency. The study measures efficiency by assessing how well banks utilize resources to generate output at an optimal scale.
In the relative performance of individual banks over the full sample period from FY06 to FY23, State Bank of India (SBI) leads among public sector banks with a score of 97.88%, followed by Union Bank of India (UBI) at 92.53%. In the private sector, HDFC Bank tops the list with a score of 97.96%, followed by Axis Bank at 94.43%. Among foreign banks, J.P. Morgan ranks highest with a perfect score of 1, while HSBC Bank follows with a Technical Efficiency score of 98.45%.
The study “Impact of Decadal Reforms on Efficiency and Productivity of Indian Banking Sector” by SBI’s economic department evaluates banking efficiency using three metrics: Technical Efficiency (TE), Pure Technical Efficiency (PTE), and Scale Efficiency (SE). TE measures how efficiently banks use inputs to produce outputs, while PTE isolates the impact of managerial decisions. SE assesses whether banks operate optimally given their size and resources.
Public sector banks (PSBs) have generally been more efficient than private banks, except during FY19-FY23, likely due to mergers and rationalization of business, branches, and employees. Despite numerous structural changes, PSBs have operated at an efficiency level of 82.76%, compared to 81.21% for all scheduled commercial banks (ASCB). State Bank of India (SBI) has consistently outperformed all bank groups across the four study periods. During the overall study period, private banks operated below the 80% efficiency level, mainly due to the impact of DCB Bank and IDFC First Bank, indicating that the takeover of weaker banks affected private sector efficiency.
For PSBs both technical efficiency and MPI score (an index used to measure productivity increase) has improved over the years. While for both private sector and foreign banks, both efficiency and productivity has declined significantly during the study period.
