Why India needs bigger, global scale banks for the next growth phase

Top PSU bankers argue India needs a few global-scale banks to fund big projects, invest in tech, and support a $35-40 trillion economy by 2047

India needs bigger banks, according to top public sector bankers. In a panel discussion at the Business Standard BFSI Insight Summit 2025 moderated by Manojit Saha, Ashwini Tewari, managing director (MD), State Bank of India; Asheesh Pandey, MD  &  chief executive officer (CEO), Union Bank of India; Debadatta Chand, MD & CEO, Bank of Baroda; and Rajneesh Karnatak, MD & CEO, Bank of India, explain the need for large banks, and learnings from the last round of consolidation. Edited excerpts:

 

Does India need larger, global-scale banks? If yes, then is further consolidation needed? 

ASHWINI TEWARI: It is important to lay out three reasons why we need bigger banks. First is scale. Larger banks means more capital, so that one can write larger cheques. Today, many of the Indian companies are very large and while consortium (lending) is a good idea, for each bank to contribute meaningfully, it’s important that the size goes up. 

Secondly, technology spends which every bank has to do. It is not only the customer convenience, but also the cyber security and data analytics, and AI which is now coming up. If the bank is large enough, it can spend regularly on technology.

And third is, of course, that as banks expand the cost to income, and also the cost to asset ratios improve as the banks become larger. In India, this is still between 1.5 to 2 per cent. Globally, this has come down to 1%, or lower. So size makes it more efficient. 

And then, of course is the kind of talent the banks need today. It’s not only the regular banking cadre, it is specialists in risk, specialists in ITs, technology, AI, all of that. 

So there’s a very clear case for large banks, there’s no question about that. Now, of course, PSB consolidation is a government role, and we will leave it to the government to decide if and when they want to do this. India definitely needs at least two banks in the top 20 global banks. 

ASHEESH PANDEY: When we talk about the need of the bigger banks, I see the two perspectives. Let us understand the Indian economy today is a demand driven economy. If we take the average age, the consumption in our own country — that is the reason the government is pushing Atmanirbhar Bharat. So that is the first part. 

The second one is maybe the various geopolitical issues. We are seeing possible de-dollarisation. We certainly need the bigger banks, wherein the other part of the world, they believe in our capital adequacy, our resilience, our strength. Another one is the balance sheet. Underwriting is a very big issue. Some 15 years back, we were seeing projects worth around, say ₹800 crore to ₹1,500 crore. But now, we are seeing project of say ₹8,000 crore, ₹9,000 crore, ₹15,000 crore. Now, to underwrite that, we should have a balance sheet of that size. So, I think these two are the driving force for the need for bigger banks. 

RAJNEESH KARNATAK: India’s GDP growth itself makes the case for larger banks. It took several decades for India to reach its first trillion dollars of GDP. Subsequent trillion-dollar milestones were achieved much faster. To reach the $35-40 trillion GDP target by 2047, the banking system must scale in tandem. This does not mean eliminating smaller banks, but it does mean having two, or three very large banks — across public and private sectors — that can anchor the system. Size must be viewed holistically: assets, deposits, advances, market capitalisation, and international presence. A diversified ecosystem is essential, but without a few globally significant banks, India’s ambitions will remain constrained. 

DEBADATTA CHAND: The answer is an unequivocal yes. Globally, large economies are supported by large, internationally active banks. These banks finance trade, infrastructure, mergers and acquisitions, and cross-border investments. Bigger banks offer three clear advantages: higher underwriting capacity, greater ability to invest in technology, and better utilisation of branches, people, and capital. If Indian banks want to enter the global top 20, or top 50, they must expand overseas and build strong fee-based businesses such as wealth management, capital markets, transaction banking, and advisory services.

 

What was the experience of the previous round of bank consolidation? 

CHAND: From Bank of Baroda’s experience, consolidation was largely successful. The two biggest challenges were technology, and HR integration. Technology planning was critical, especially ensuring all banks operated on compatible platforms. HR integration required sensitivity, transparency, and creating a unified workforce culture. If these two aspects are managed well, consolidation can deliver strong results. 

PANDEY: The last consolidation happened during the Covid-19 period, which made it especially challenging. I describe the process using the framework of 3P + T + D, that is, people, products, processes, technology, and data. Cultural harmonisation is often underestimated, and public sector banks do not have the same culture. Experience from past mergers has strengthened the system’s ability to handle these challenges better in the future. 

TEWARI: Even for SBI, mergers were not easy. Although technology platforms were similar, regional banks had strong local identities and close ties with state governments. Managing regional sensitivities, staff concerns, and cultural differences required extensive communication and transparency. 

Another issue was asset quality. Some associate banks carried hidden NPAs, which increased SBI’s stress initially. However, common platforms and strong governance helped complete the merger successfully.

 

Since asset quality of banks is much better today. Do you think it is the right time for the wave of consolidation? 

KARNATAK: Asset quality is at its best, both for the private sector banks and public sector banks, for scheduled commercial banks in general. So that is not a challenge as far as the consolidation is concerned. Earlier, there were certain issues like asset quality review, and then in 2020 when the bigger consolidation happened, Covid-19 also came. So this is the right time for consolidation as far as only one part is concerned, which is the asset quality. 

But as far as the other broader point, I would say the PPT (people, process, technology) part is always a challenge. 

Earlier, the consolidations were happening based on whether the technology of the platform is the same or not. The vendors have been able to build up the stack in a way that different technology platforms can also be amalgamated. So that challenge is also now over to a certain extent.

 

What should be the key parameters for identifying candidates for mergers? 

CHAND: The biggest points should be the compatibility. Is it adding scale? Is it creating real synergy? There are two, three concepts that work for a merger and consolidation. One is that we need to add scale. Secondly, we need to be a global bank. Thirdly, it helps us in terms of creating our own goal post of Viksit Bharat. 

 

Is branch rationalisation inevitable for a merger? 

Tewari: Branch rationalisation is not the objective of a merger generally. You have not seen too many branch closures. After mergers happen, if the branches were next to each other, some calls might have been taken, but in the regular course, you don’t see branches being closed by any bank as of now. 

The pace of increase or opening of branches might have come down a little bit because so much has shifted to digital, but as a country, India would always need a mix of approaches. We will always need ‘Phy-gital’, with branches as an anchor for customers to come in. There will be a segment of customers, like senior citizens, students, who might still need to come to branches. And going forward, advisory services can be offered at scale from branches and so on. The branches will always be needed. Maybe that number might not be as large as earlier times.