A Comparative study of the Financial Performance of Public and Private Sector Banks in India: Evidence from Profitability, Asset Quality and Operational Efficiency

Abstract

In India the role of the banking sector in fostering the economic development is significant with respect to the mobilisation of saving, availability of credit and the various productive economic activities. This study compares financial performance of public and private sector banks in India over the period from 2020-21 to 2024-25 on selected financial parameters profitability, asset quality and operational efficiency. This study is descriptive and analytical in nature which has been done by secondary data collected mainly from the publications of Reserve Bank of India. Net Interest Margin (NIM), Gross Non-Performing Asset (GNPA) ratio and Operating Expense Ratio are used as key financial performance indicators. Data analysis is done using descriptive statistics, Welch's t-test, Pearson correlation and Ordinary Least Squares (OLS) regression. The results showed that the private sector banks have an extremely high NIM when compared with the public sector banks and the average GNPA ratio was also lower in the private sector banks. However, the public sector banks showed significant improvement in asset quality during the study period. The correlation analysis shows there is a significant negative correlation between GNPA and NIM. The regression results also confirm the significant negative relationship between GNPA and bank profitability. The study finds that asset quality is a significant factor that is associated with banking profitability, and the profitability of the private sector banks is better in interest margin profitability during the study period.

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