Size Matters: What will it take for India PSBs to break into Global Top 20?

With a rank of 43, the State Bank of India (SBI) is currently the only Indian public sector lender in the latest S&P Global Market Intelligence ranking of the world's 100 largest banks by assets

At a two-day 'Manthan' (meaning 'churn') event of public sector banks (PSBs) last month - the first such summit hosted by the department of financial services (DFS) in the ministry of finance since April 2022 - the government set an ambitious target to see at least two to three state-owned banks break into the world’s top 20 by 2047.

 

During the event, DFS Secretary M Nagaraju said PSBs have moved beyond the phase of survival and stability and are now positioned to play a larger role as champions of growth, innovation and leadership in India’s march towards Viksit Bharat.

 

A sprawling PSB ecosystem

 

India has 12 public sector banks (PSBs), which in 2024 accounted for 59.5 per cent of the total banking assets in the country across public, private, and foreign banks. Interest income for public banks hit Rs 11.1 trillion ($128.1 billion), while private banks earned Rs 8.3 trillion ($95.7 billion) during the year.

 

State Bank of India (SBI) and HDFC Bank are the only Indian banks in the latest S&P Global Market Intelligence ranking of the world’s 100 largest banks by assets. SBI climbed four places to 43rd, while HDFC Bank rose one place to 73rd in this year’s ranking. Chinese lenders dominated the list, occupying the top four positions, reflecting their influence in mergers and acquisitions (M&As).

 

Lessons from PSB mergers

 

In the biggest consolidation exercise in recent memory, the government in August 2019 announced four major mergers of PSBs, bringing down their total number to 12 from 27 in 2017, a move aimed at making state-owned lenders more efficient and competitive.

 

Bankers privy to the process recall that while smaller banks often lost their regional customer base, the consolidation also created a new generation of leaders. Of the 12 current PSB managing directors (MDs), four come from merged entities; for example, UCO Bank’s Ashwani Kumar and Punjab & Sind Bank’s Swarup Kumar Saha both came from Oriental Bank of Commerce (OBC).

 

A former MD involved in the merger process said that every consolidation is a “calculated risk". Given banks’ crucial role in the economy, any merger brings disruption but, if successful, strengthens the financial system. Smaller banks, he added, were often inefficient and might not have survived the current regulatory climate. Consolidation reduced duplication, improved efficiency, and aligned with the government’s broader goal of building strong, sustainable institutions — similar to China’s model of large state-owned banks.

 

Another senior banker noted that mergers, while disruptive, delivered results. “The last consolidation round was very successful — it cleaned up balance sheets, improved efficiency, and accelerated post-COVID recovery,” he said. Integrating systems, staff, and customers typically takes up to two years, but India’s experience since the SBI associate mergers has made the process smoother and more systematic.

 

A third official acknowledged that some legacy issues persist. Centuries-old institutions like OBC and Corporation Bank had strong regional identities, and their loss still evokes emotional responses among staff and retirees. Yet, he said, PSBs today are cleaner, more profitable, and technologically stronger, with improved decision-making and resilience.

 

Is consolidation the way forward?

 

For India to place multiple PSBs in the global top 20, policymakers need to accelerate consolidation, open targeted channels for foreign and private capital, deepen credit markets through corporate bonds and securitisation, and scale up international operations and wholesale banking capabilities.

 

R Gandhi, former deputy governor of the Reserve Bank of India (RBI) said global ambitions of PSBs would essentially mean Indian companies evolving into global entities. “For that to happen, companies need to operate at a much larger scale — many times over what they’ve achieved within India,” he said.

 

Gandhi added that such expansion demands substantial capital infusion. “Of course, companies can’t raise all of it through equity or markets alone; they also need leverage. Leverage means borrowing, and that borrowing comes either from the debt market or from banks. So, for Indian corporations to grow globally, the banking system must be capable of supplying the necessary credit.”

 

Go big or go home

 

A senior public sector banker said that learning from past mergers would help in operational smoothening and scaling up. “Though I believe we need smaller banks as well, we also need at least 4-5 larger banks. They would have the capacity to cater to larger credit needs and expand their global presence,” said the chief of a public sector bank.

 

Gandhi also argued that consolidation could help create larger, more competitive banking groups. “There are two complementary routes for this: raising fresh capital through market instruments (QIPs, FPOs, strategic sales) and attracting larger foreign strategic investors — which may require easing ownership/voting caps and the government diluting its stake in some PSBs,” he said.

 

“After the AQR process and subsequent mergers, India has seen the emergence of a few large PSBs. However, their size is still between $75 billion – $150 billion. Both in terms of market cap and assets, PSU banks in India need to increase their base by two to ten times,” said Sanjay Agarwal, senior director at CARE Ratings.

 

Agarwal said that this would require major efforts in talent management, business opportunities, lines of business, and equity funding. “Currently, overseas investors are the largest shareholders of private banks. PSBs will also need to attract those funds and actively participate in capital markets for both raising and deploying resources efficiently. While we’ve seen a good start from FY18 onwards, a lot more needs to happen,” he added.

 

Expanding global footprint

 

Indian banks have significantly expanded their international presence through 2025. According to the RBI’s 2024–25 Survey on International Trade in Banking Services (ITBS), they increased overseas branches by 1.9 per cent and employee strength by 6.1 per cent during 2022-23. This expansion, primarily through subsidiaries and joint ventures, led to a 9.1 per cent growth in overseas branch balance sheets and a 4.2 per cent increase in those subsidiaries. Notably, the total income-to-assets ratio for overseas branches improved sharply to 3.9 per cent in 2022–23, up from 1.6 per cent in the preceding year, indicating a marked improvement in operational efficiency.

 

“Public sector banks enjoy a natural advantage due to their extensive network and strong deposit-raising capabilities. They are well-capitalised and have been delivering consistent performance,” said a senior public sector banker, noting that PSBs now have stronger balance sheets than some private peers.

 

Need for reforms

 

Proponents of the-bigger-the-better approach believe stake dilution and foreign capital will bring funds, governance, and global distribution networks. “More FDI will definitely work, and we need to reconsider the current 20 per cent foreign-cap limit for PSBs. It would be great to get more foreign capital,” said a senior public sector banker. Under the Banking Companies (Acquisition and Transfer of Undertakings) Act, no individual or company resident outside India may hold more than 20 per cent of a nationalised bank’s paid-up capital.

 

A senior banker also advocated for granting more autonomy to PSB boards. These issues, including diluting the government stake, and leaving regulation primarily to the RBI, were also up for discussion at the PSB Manthan event. “Experts and bankers advocated for further dilution of the government’s stake and for more powers to be given to boards, which would smoothen PSB operations,” a source said about the two-day summit.

 

In May 2014, the P J Nayak Committee, appointed by the RBI to review governance of bank boards, recommended that the boards of PSBs be allowed to appoint non-official directors (NODs); currently, the DFS selects NODs for PSBs.

 

Unlike private sector peers, PSBs do not possess the independence to appoint NODs, who have a non-executive role, based on their requirements and following a “fit-and-proper criteria” of their own. Instead, the government searches and selects NODs for state-owned banks without the need for consent from the latter.

 

Some bankers suggested that this is the right moment to consider bold reforms, possibly requiring amendments to the Banking Companies (Acquisition and Transfer of Undertakings) Act and the State Bank of India Act. Key areas include longer leadership tenures, better compensation, clear separation between ownership and management, and greater board autonomy. “The way forward is not heavier regulation, but smarter regulation. Boards should govern independently, with tighter supervision rather than day-to-day regulatory intrusion. Regulation must be clear, simple, and focused, not excessively complex,” the official added.

 

Experts believe the move to allow private bankers to apply for managing director positions in SBI and other PSBs indicates the government's appetite for banking reforms. How effectively it navigates the challenges ahead, however, remains to be seen. 

India eyes global banking league

• Indian banks’ overseas expansion drives efficiency and growth
• PSBs control 59.5% of India’s banking assets; they earned ₹11.1 trillion in interest in 2024
• SBI (43rd) and HDFC Bank (73rd) are the only Indian banks in the global top 100 by assets
• 2019 PSB mergers reduced their number from 27 to 12, boosting efficiency and scale
• Experts say further consolidation and capital infusion are essential for global competitiveness
• Bank chiefs call for 4-5 mega PSBs capable of handling large credit needs
• CARE Ratings says PSBs must grow assets 2–10x and attract global investors
• Recentt move allowing private bankers to apply for PSB MD posts signals renewed reform momentum