A groundbreaking study by the Economic Advisory Council to the Prime Minister (EAC-PM) reveals that public sector banks are operating at higher efficiency levels than their private sector counterparts.
- Public sector banks (PSBs) recorded an efficiency score of 93.12% in 2025-26, surpassing private banks at 86.02%.
- HDFC Bank led the private sector efficiency, while SBI emerged as the leader among public sector lenders.
- Experts recommend further consolidation to create large-scale, equal-sized banks to support India's 2047 goals.
In a significant departure from conventional wisdom, a recent analysis by the Economic Advisory Council to the Prime Minister (EAC-PM) has found that government-run banks in India are more efficient than private lenders. The study highlights that public sector lenders have seen a notable improvement in their performance over the last three years.
The research paper, titled 'Reforms, Efficiency, and Productivity of Indian Banking Sector in the Last Decade: A DEA Approach', authored by Soumya Kanti Ghosh and Tapas Kumar Parida, reveals that PSBs operated at an efficiency of 93.12% in 2025-26. In stark contrast, private banks stood at 86.02%, while foreign banks trailed at 85.88%.
Understanding Efficiency Scores
The study utilizes Data Envelopment Analysis (DEA), a method designed to measure the relative efficiency of decision-making units. An efficiency score below 100% indicates how much an institution can reduce its inputs (such as capital, staff, or resources) while maintaining the same level of output. For instance, a bank with 85% efficiency can theoretically cut inputs by 15% without losing productivity.
Why This Matters
BozokMedia analysis shows that these findings validate the strategic mergers and rationalization processes undertaken by the Indian government since 2017. The consolidation of various state-run entities into larger, more robust units has successfully bridged the productivity gap that previously existed between public and private institutions.
Beyond technological advancements, the primary differentiator for future banking success will be the ability to attract, train, and retain top-tier human talent.
Among the private players, HDFC Bank has been the standout performer, maintaining an efficiency score of 97.54% from 2014-15 to 2025-26. State Bank of India (SBI) followed closely with a score of 97.49%, making it the most efficient public sector bank. Interestingly, IDBI Bank, currently under government divestment processes, ranked as the seventh-most efficient bank over the 12-year period.
Efficiency Comparison Table
| Bank Category | 2025-26 Efficiency Score (%) | 12-Year Average Score (%) |
|---|---|---|
| Public Sector Banks (PSBs) | 93.12% | 88.53% |
| Private Banks | 86.02% | 85.62% |
| Foreign Banks | 85.88% | 88.98% |
Looking ahead, the authors suggest that India should pursue further consolidation to create a few massive, equal-sized banks. This structural shift is viewed as essential to meet the massive credit demands of a nation aiming to become a developed economy by 2047.
Frequently Asked Questions
1. What is the main reason for the high efficiency in PSBs?
The researchers suggest that recent mergers and the rationalization of branches and employees have significantly boosted the efficiency of public sector banks.
2. Which bank was the most efficient overall?
While HDFC Bank led the private sector, SBI was the leader among public sector banks, with both maintaining exceptionally high scores.
