MEGA BANK MERGER: WILL IT AMPLIFY RISK?

The government is reportedly preparing for another round of public sector bank (PSB) consolidation, five years after the last major merger exercise brought the number of state-owned lenders down to 12 from 27.

- BY PUNEET KUMAR ARORA & JAYDEEP MUKHERJEE

The renewed push aims to create fewer, larger institutions with the balance-sheet strength of global-scale banks, capable of supporting India's expanding investment and credit requirements. However, a deeper concentration of banking activity within a handful of mega lenders raises concerns over diluted regional priorities and heightened systemic risks should stress build up in one or two dominant institutions. As discussions gather pace, the challenge will be to strike a balance between scale and stability, while also achieving reach.

GLOBAL GAP

INDIA'S BANKING system remains small by global standards. Only two Indian lenders, State Bank of India (SBI) and HDFC Bank, feature among the world's 100 largest, ranking 43rd and 73rd, respectively. China, in contrast, dominates the global leaderboard with 21 banks, including seven in the top 20. SBI's balance sheet stands at roughly $0.85 trillion, while the Industrial and Commercial Bank of China (ICBC) manages assets worth $6.7 trillion, nearly eight times larger. The two largest US lenders, JPMorgan Chase and Bank of America, operate with asset bases of $3-4 trillion.

India has had many mid-sized banks rather than a few dominant ones, a legacy of gradual nationalization, fragmented branch-led expansion, and conservative growth models. The 12 PSBS collectively manage assets worth around $1.95 trillion, much smaller than a single Chinese banking giant. The gap carries consequences for India's financial capacity, particularly in funding large infrastructure and industrial projects.