PM’s Economic Advisory Council Advocates for Banking Consolidation to Boost Global Competitiveness
MUMBAI – In a move aimed at bolstering India’s financial architecture, the Economic Advisory Council to the Prime Minister (EAC-PM) has proposed a fresh wave of consolidation within the banking sector. The recommendation seeks to foster the growth of several large, globally competitive financial institutions, capable of meeting the credit demands of an economy striving for developed-nation status by 2047.
The report, authored by economists Soumya Kanti Ghosh and Tapas Kumar Parida, highlights a transformative decade for India’s banking system. The findings underscore that aggressive policy interventions—most notably the Asset Quality Review (AQR), the implementation of robust insolvency laws, and previous rounds of bank mergers—have significantly purged legacy issues and enhanced overall sector efficiency.
A Turnaround in Efficiency
The study provides a comprehensive look at the health of scheduled commercial banks (SCBs) between FY15 and FY26. It reveals a volatile but ultimately upward trajectory: mean technical efficiency dropped from 91.3% in FY15 to a low of 78% by FY20, weighed down by the systematic recognition of bad loans and the economic fallout of the COVID-19 pandemic.
However, the recovery has been marked. By FY26, the sector’s average technical efficiency rebounded to 88.3%. Notably, public sector banks were the primary drivers of this resurgence; following recapitalization efforts and extensive digital modernization, their average technical efficiency climbed from a nadir of 72.5% in FY20 to an impressive 93.1% in FY26.
The Path Toward “Global Scale”
Despite these gains, the authors argue that the current landscape requires further structural evolution. “India should make efforts to consolidate the banks in such a manner that a few big banks of equal size would be created, without compromising market competition in the industry,” the report states. The goal is to move beyond domestic operations and nurture entities that can stand alongside major global banking conglomerates.
The report also offers a strategic blueprint for banks to sustain this momentum:
- Balancing the Balance Sheet: Banks are encouraged to aggressively narrow the widening credit-deposit gap.
- Deposit Mobilization: There is an urgent need to secure stable, low-cost deposit bases to ensure long-term liquidity.
- Risk Management: The report cautions against over-reliance on high-risk unsecured retail loans, urging lenders to instead diversify their portfolios toward more productive sectors such as MSMEs, infrastructure development, and green investments.
As the nation looks toward its 2047 economic targets, the EAC-PM’s call for further bank mergers signals a pivot from mere survival and cleanup to a phase of expansion and global integration for the Indian financial sector.
