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PSBs emerge more efficient than private banks after decade of reforms: EAC-PM

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PSBs emerge more efficient than private banks after decade of reforms: EAC-PM

PSBs emerge more efficient than private banks after decade of reforms: EAC-PM

The sharper improvement among PSBs marks a reversal of the relative position of the two banking groups. PSB efficiency increased by more than 20 percentage points between FY20 and FY26, compared with an increase of about 8 percentage points for private banks.

Overall mean technical efficiency across 47 banks rose to 88.34% in FY26 from 77.99% in FY20, based on the study’s DEA assessment. The efficiency findings challenge the conventional view of private banks as more efficient, though DEA measures resource-use efficiency rather than profitability or shareholder returns. The study finds that takeovers of weaker banks affected the efficiency and productivity of acquiring lenders, highlighting a trade-off in consolidation. Technology and artificial intelligence are identified as potential drivers of the next phase of banking-sector efficiency and productivity gains.

Public sector banks (PSBs) recorded higher technical efficiency than private sector banks (PVBs) in FY26, with PSB efficiency rising to 93.12% from 72.46% in FY20, while private banks improved to 86.02% from 78.03% over the same period, an Economic Advisory Council to the Prime Minister (EAC-PM) working paper said. The overall mean technical efficiency of the banks covered in the study increased to 88.34% in FY26 from 77.99% in FY20, reflecting a substantial improvement in banking-sector efficiency. The study uses Data Envelopment Analysis (DEA) to assess technical efficiency and productivity across 47 banks over FY15-FY26. Advt

DEA is a statistical benchmarking technique used to measure the relative efficiency of organisations that use multiple inputs to produce multiple outputs.


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