Introduction to Indian Banking Sector
The Indian banking sector has been a stable and calm entity, even when the global financial systems were facing turbulent times. Although there have been phases where non-performing assets increased or certain segments experienced stress, the conservative approach of the Indian central bank has ensured the sector’s overall stability.
The Idea of Creating Large, Global Scale Banks
There is an ongoing discussion about creating large, global scale banks in India. This idea seems to be driven by two factors: the need for funds to scale up and grow the private sector, and the fact that Indian banks rank low among global banks in terms of assets. However, it is essential to assess whether there is a genuine demand for large banks at this juncture.
Global Giants in Banking
A glance at the S&P Global’s list of the world’s largest banks reveals that the top 20 banks are enormous, with assets worth trillions of dollars. Chinese government-owned banks, such as Industrial and Commercial Bank of China, Agricultural Bank of China, China Construction Bank, and Bank of China, occupy the top four ranks, holding assets worth $22 trillion. In contrast, only two Indian banks, SBI and HDFC Bank, feature in this list, with total assets of $846 billion and $494 billion, respectively.
Assets of Indian Banks
The total assets held by Indian scheduled commercial banks amount to $3.38 trillion, which is only half of the assets of the Industrial and Commercial Bank of China. Some media reports suggest that consolidating public sector banks could be a way to create large banks. However, even if all PSU banks were merged into one entity, the bank would still be ranked 18th on the global large banks list.
Is There a Need for Large Banks?
The more important question is whether India really needs large banks at this juncture. The three segments that are intended to benefit from large banks are corporate borrowers, infrastructure finance, and M&A finance. However, credit growth to industries has been sluggish, and companies have been using non-bank sources of funds, such as internal accruals, the corporate bond market, and external commercial borrowings.
Infrastructure Financing
Infrastructure financing is best handled through development institutions, which can access long-term loans from global multilateral institutions to finance their operations. The National Bank for Financing Infrastructure Development, set up in 2021, has already sanctioned loans worth ₹2.03 lakh crore as of March 2025.
M&A Financing
The average value of M&A deals between 2019 and 2024 was only ₹3.7 lakh crore per year, which is not very difficult to service with the assets held currently by the banking sector.
Conclusion
In conclusion, while creating large banks may not be a bad idea, there appears to be little reason to try and create large banks that can be counted among the top 20 global biggies. The Indian banking sector has been stable, and the demand for large banks is not strong. It is essential to focus on improving governance, efficiencies, and customer benefits rather than creating large banks solely for the sake of size.
