A Surprising Shift in Banking Efficiency
Public sector banks (PSBs) have emerged as more operationally efficient than private sector lenders, according to a new study by the Economic Advisory Council to the Prime Minister (EAC-PM). The findings challenge the widely held perception that private banks consistently outperform government-owned lenders on efficiency.
The study, titled Reforms, Efficiency, and Productivity of Indian Banking Sector in the Last Decade: A DEA Approachexamined 47 banks across India between 2014-15 and 2025-26.
PSBs Outperform Private Banks
The study found that public sector banks recorded an efficiency score of 93.12% in 2025-26, significantly ahead of private banks at 86.02%. Foreign banks recorded an efficiency level of 85.88%.
Over the full 12-year period, PSBs also maintained an advantage over private lenders, with an average efficiency score of 88.53%, compared with 85.62% for private banks. Foreign banks had a higher long-term average of 88.98%, although their efficiency declined substantially during the period.
The results indicate that the performance of government-owned banks has improved considerably in recent years.
What the Efficiency Score Means
The study used Data Envelopment Analysis (DEA), a method that measures how effectively organisations use their resources to generate output.
An efficiency score below 100% does not necessarily mean a bank is performing poorly. Instead, it indicates the potential to reduce inputs while maintaining the same level of output. For example, a score of 85% suggests that a bank could theoretically reduce its inputs by 15% while producing the same output.
SBI and HDFC Bank Among the Leaders
Among individual lenders, HDFC Bank recorded the highest efficiency score among private banks over the 12-year period, at 97.54%. State Bank of India followed closely at 97.49%, making it the leading PSB.
The study also found that HSBC and JPMorgan Chase were the only banks to maintain a perfect 100% efficiency score throughout the entire period examined.
The performance of public sector banks appears to have improved following major consolidation and restructuring efforts, including the merger of several state-owned lenders.
Bank Consolidation Could Continue
The researchers have recommended further consolidation of India’s banking sector, arguing that the country could benefit from creating a smaller number of large banks of broadly comparable size while maintaining competition.
Such consolidation, according to the study, could help banks meet India’s growing credit requirements as the country works towards its long-term economic development goals.
However, efficiency is not the only measure of a bank’s success. Customer experience, profitability, asset quality, innovation and technological capabilities will remain important factors in determining competitiveness.
Technology and Talent Will Shape the Future
The study also highlights the growing importance of technology and human resources. As banking becomes increasingly digital and automated, banks will need employees with new skills and the ability to adapt to changing technologies.
The findings suggest that India’s public sector banks have made significant progress, but sustaining that improvement will require continued investment in technology, talent and operational capabilities.
Summary
A new EAC-PM study has found that public sector banks were more efficient than private banks in 2025-26, recording an efficiency score of 93.12% compared with 86.02% for private lenders. The findings challenge traditional perceptions of banking efficiency and highlight the impact of consolidation, restructuring and improved resource utilisation across India’s state-owned banking sector.