Public sector banks (PSBs) are more efficient than private sector peers in labour cost efficiency

K. M. Neelima, Radheshyam Verma and Preeti Asthana (research intern) of RBI in this paper (in Apr-19 Bulletin), estimate the labour cost efficiency of Indian banks:

The shift in emphasis from brick-and-mortar operations to digital modes, coupled with increasing per employee output, suggests an improvement in the labour cost efficiency (LCE) of Indian banks.

Using Data Envelopment Analysis (DEA) for the period 2005-2018, the results presented in this article show that LCE has not improved. Public sector banks (PSBs) turn out to be more efficient than private sector peers, reflecting deceleration in employment growth as also cost cutting through innovative techniques. Furthermore, large banks are found to be more efficient than small banks as they can reap economies of scale.

This finding provides an additional rationale for recent mergers of banks, both amongst PSBs and PVBs and suggests that further avenues of consolidation in the banking sphere may be explored.

Quite surprising to read that PSBs have done better than private counterparts on labor costs.

 

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.


%d bloggers like this: