Why in the News
A paper by two economists for the Economic Advisory Council to the Prime Minister (EAC-PM), a body that advises the Prime Minister on economic policy questions, found that public sector banks (PSBs) are more efficient than private and foreign banks.
Titled “Reforms, Efficiency, and Productivity of Indian Banking Sector in the Last Decade: DEA Approach”, the paper used Data Envelopment Analysis (DEA), a method that measures how far a unit could shrink its inputs while producing the same output, to compare 47 banks.
What does the study find?
- PSBs improved significantly: During 2014-15 to 2025-26, PSBs recorded average efficiency of 88.53%, compared with 85.62% for private banks. Foreign banks led over the full period: Foreign banks had the highest 12-year average of 88.98%, but their efficiency declined from 95.86% in 2014-15. Most efficient banks:
- HSBC and JPMorgan Chase: 100% efficiency in all 12 years.
- HDFC Bank: 97.54% average efficiency among private banks.
- State Bank of India (SBI): 97.49%, highest among PSBs.
- DBS Bank India: Lowest single-year efficiency of 40.12% in 2021-22, linked to its merger with Lakshmi Vilas Bank.
- Impact of PSB mergers: PSBs were relatively less efficient than private banks during FY2019 to FY2022, partly due to the merger and rationalisation of branches, employees and business operations.
Data Envelopment Analysis (DEA)
- DEA is a method for measuring the relative efficiency of units, here banks, that produce the same kind of output from different combinations of inputs.
- An efficiency score below 100% means the unit could reduce its inputs by that shortfall and still produce the same output. Eg. A score of 85% means the unit could cut inputs by 15% without any loss of output.
“[2024] Consider the following statements:
Statement-I: Syndicated lending spreads the risk of borrower default across multiple lenders.
Statement-II: The syndicated loan can be a fixed amount/lump sum of funds, but cannot be a credit line.
Which one of the following is correct in respect of the above statements?
(a) Both Statement-I and Statement-II are correct and Statement-II explains Statement-I
(b) Both Statement-I and Statement-II are correct, but Statement-II does not explain Statement-I
(c) Statement-I is correct, but Statement-II is incorrect
(d) Statement-I is incorrect, but Statement-II is correct
