Public Sector Banks (PSBs) have emerged as more efficient than private sector banks in recent years, challenging the common perception that private lenders consistently outperform their government-owned counterparts.A working paper by the Economic Advisory Council to the Prime Minister (EAC-PM) has highlighted a significant improvement in the efficiency of public sector banks, particularly during the last three years.
## PSB Efficiency Rises Sharply
According to the study, the efficiency of Public Sector Banks improved to 93.12% in FY26, compared with 72.46% in FY20.
The study attributes this improvement to factors including **capital infusion, technological upgrades, rationalisation of business operations, branches and employees, and greater digitalisation.
The paper noted that PSBs were relatively more efficient than private banks during most of the study period, with the exception of FY19-FY22.
Study Covers 47 Banks
The working paper, authored by Soumya Kanti Ghosh, part-time member of EAC-PM and Group Chief Economic Advisor at State Bank of India, along with Tapas Kumar Parida, economist at SBI, analysed the performance of 47 banks during FY15 to FY26.
The study covered:
*12 Public Sector Banks
*21 Private Sector Banks
*14 Foreign Banks
Together, these banks account for more than **95% of the assets of India's banking system**.
The study measured banking efficiency on a scale of 0 to 1, with the results expressed in percentage terms.
## Private Banks Also Show Improvement
The improvement was not limited to PSBs. The efficiency of private sector banks increased to more than 86% in FY26, compared with around 78% in FY20.
However, foreign banks recorded relatively stable efficiency levels of around 83–85% during FY20 to FY26.
The study observed that the performance of PSBs has been in a better position compared with private banks, particularly during the most recent three-year period from **FY24 to FY26**.
## SBI Leads Among Public Sector Banks
Among Public Sector Banks, State Bank of India (SBI) emerged as the strongest performer in the full FY15-FY26 sample period, recording an efficiency score of 97.49%.
It was followed by:
* Bank of Maharashtra – 90.49%
* SBI – 97.49% among PSBs
Among private sector banks, HDFC Bank recorded an efficiency score of 97.54%, followed by IDBI Bank at 96.51%, according to the study.
Among foreign banks, HSBC and JP Morgan recorded the highest scores.
Over the full FY15-FY26 study period, JP Morgan and HSBC ranked first, followed by Citibank, HDFC Bank, and SBI.
## What Is Driving the Change?
The improvement in PSB efficiency reflects the transformation taking place across India's banking sector.
Several factors have contributed to this change:
* Capital infusion and stronger balance sheets
* Technology upgrades and digital banking
* Rationalisation of branches and employees
* Greater operational efficiency
* Business restructuring and consolidation
* Increased adoption of automation and data-driven systems
The study suggests that the traditional perception of PSBs being less efficient than private banks may no longer accurately reflect the current banking landscape.
Banking Is Entering a New Phase
The EAC-PM paper also highlighted that the Indian banking sector is likely to undergo significant changes in the coming years.
Artificial Intelligence (AI), hyper-personalisation, automation, data security and digital customer experiences are expected to become increasingly important.
Banks are likely to move from reactive customer service towards more proactive and personalised engagement, particularly as younger customers increasingly expect digital-first banking services.
The paper suggests that banks will increasingly focus on data-driven customer experiences, AI-based services, automation and robust data security.
The latest findings provide an important perspective on the changing competitive landscape of Indian banking.
With PSB efficiency rising from 72.46% in FY20 to 93.12% in FY26, the performance gap between public and private sector banks appears to be narrowing—and, in several recent years, PSBs have performed better on efficiency measures.
The transformation of Public Sector Banks through technology, capital strengthening, operational reforms and digitalisation could play a crucial role in making them more competitive and customer-focused in the years ahead.
Hence, India's Public Sector Banks are not just becoming stronger—they are becoming more efficient.
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