India Plans Bank Consolidation to Create Global-Scale Lenders

Strategic Move Towards Larger Banking Entities

India's Finance Minister Nirmala Sitharaman has announced plans to create larger, world-class banks through potential mergers and increased foreign investment in state-owned lenders. The proposal aims to strengthen India's banking sector by consolidating existing institutions.

Current State of Indian Banking Sector

As of March 2025, India operates 12 state-owned banks with combined assets totaling 171 trillion rupees ($1.95 trillion USD), representing 55% of the national banking sector. This significant presence underscores the importance of these banks in India's financial system.

Previous Consolidation Efforts

The Indian government has previous experience with bank consolidation. In 2020, a major restructuring effort reduced the number of state-owned banks from 27 to 12, creating larger entities through mergers. The current proposal builds upon this consolidation strategy.

Path Forward

Finance Minister Sitharaman emphasized the need for discussion with the Reserve Bank of India and other stakeholders to determine the best path forward. The government is also considering allowing higher foreign investment in state-owned banks to support the creation of global-scale lenders.

Implications for India's Financial Sector

The proposed consolidation is expected to enhance the competitiveness of Indian banks on the global stage. Larger banks with stronger capital bases could better withstand economic shocks and support India's economic growth ambitions.