Economic Survey 2020 calls for better efficiency at public sector banks

The Economic Survey 2019-20, among many other things, has called out the inefficiencies in India's public sector banks (PSBs) and asked them to be more efficient.

"Scenario analysis clearly suggests that the costs stemming from the inefficiency of PSBs are enormous... As PSBs and New Private Banks (NPBs) operate in the same domestic market, there is a case for enhancing the efficiency of PSBs," the economic survey said.

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For FY19, PSBs had made a collective loss of Rs 66,000. "Over Rs 4,30,000 crore of taxpayer money is invested as the government’s equity in PSBs. In 2019, every rupee of taxpayer money invested in PSBs, on average, lost 23 paise. In contrast, every rupee of investor money invested in NPBs—banks licensed after India’s 1991 liberalisation—on average gained 9.6 paise," the survey states. 

To understand the scale of inefficiencies in PSBs, the survey estimated the potential gain only from changes in the return on the taxpayer’s investment in PSBs.

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"The return earned by an investor in an average New Private Banks (NPB) represents the benchmark that must be employed to estimate the losses that the taxpayer bears from her investment in PSBs," the survey said.

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Using this benchmark, the foregone return on the taxpayer’s investment in PSBs must rank as one of the largest subsidies as the foregone amount of over Rs 1.4 lakh crore compares similarly to the amount provided for the food subsidy.