Next Phase of Bank Mergers to Create Larger Banks

Signaling the beginning of discussions on the second phase of consolidation among public sector banks, the government has initiated talks with the Reserve Bank of India (RBI) and other banks to develop an ecosystem for building large banks in India.

The merger of public sector banks (PSBs) is considered one of the key pathways toward forming major banking institutions, as the country needs several large, world-class banks to meet its growing economic and financial needs. The first phase of bank consolidation took place during the financial year 2019–20, when 13 public sector banks were merged into 5.

At present, India has 12 public sector banks, but based on total assets, only one domestic bank features in the top 50 global banks. According to S&P rankings, the State Bank of India (43rd) and HDFC Bank (73rd) are among the top 100 global banks. In comparison, China dominates the list, with the top four global banks and seven out of the top twenty belonging to that country.

Finance Minister Nirmala Sitharaman emphasized the need for a more proactive approach, stating: “You will have to be more active and reach out to your customers. At the same time, you must ensure that whatever you do is a blend of traditional banking and technology-driven modern banking.” She further highlighted the importance of language in customer communication, noting that one of the biggest challenges in public sector bank mergers is linguistic diversity: “Language is an important medium of communication with customers. One major obstacle in PSB consolidation is that, due to our human resource policies, employees speaking different mother tongues are often posted in different regions.”

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