PSBs outshine private, foreign peers in technical efficiency: SBI report

SBI report says takeover of weaker banks affected productivity of acquiring ones

Public sector banks (PSBs) performed better than private and foreign peers during the FY06-FY23 period in terms of efficiency, according to a report by State Bank of India (SBI).

According to the report, the average technical efficiency of the banking industry (overall) during the period stood at 81.21 per cent.

This means, the lenders could have reduced their inputs by 18.79 per cent for producing the same level of output.

The bank group-wise results for FY06-FY23 indicate that PSBs are the leaders and operate at 82.76 per cent. In comparison, private banks are operating at 79.59 per cent and foreign banks at 78.15 per cent.

 

During the last 10 years, the Indian banking sector exhibited heightened resilience and survived several challenges in the domestic and global economic arena, the report said.

“The results show that contrary to popular perceptions, the performance of PSBs are much better compared to private and foreign banks,” SBI’s Group chief economic advisor Soumya Kanti Ghosh said. 

The research paper 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.

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

“In the study period, private banks were operating below the 80 per cent level, which is primarily due to DCB Bank and IDFC First Bank,” the report said.

The research considers four study periods — FY06-FY10, FY11-FY18, FY19-FY23 and the entire FY06-FY23 period.

The report 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.

The government decided to merge 10 public sector banks into four, which came into effect from April 1, 2020.

Among PSBs, SBI performed relatively better and scored 97.88 per cent during the full sample period of FY06-FY23. It was followed by Union Bank of India at 92.53 per cent. HDFC Bank led private sector banks at 97.96 per cent followed by Axis Bank at 94.43 per cent.