India Says It's Keen to Create Bigger Banks, Possibly Via Mergers

India’s finance minister said on Thursday the country needs more “big banks” and efforts are underway to achieve that goal, including possibly via the consolidation of some state-run banks.

India has 12 state-owned banks, which together held assets totaling 171 trillion rupees ($1.95 trillion) as of March, representing 55% of the nation’s banking sector.

The Modi government in 2020 consolidated 27 banks into 12 to form larger entities. And last month, it was revealed that Delhi is also considering allowing higher foreign investment in state-owned lenders.

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“India needs a lot of big, world-class banks, and for that we will have to talk with the Reserve Bank (of India) and banks, and to see how they want to take it forward,” Finance Minister Nirmala Sitharaman said.

The government will also discuss the idea of building larger banks with the RBI, she said. The minister was responding to a question on whether the government is discussing further bank consolidation and higher foreign investment limits for public sector banks.

“So there’s a lot of work to do, prior to my saying yes. Work has already commenced and we are discussing [this] with the RBI and banks,” she said.

Sitharaman said the consolidation of existing public sector banks could also be one of the routes to create bigger banks.

“But you need an ecosystem in which more banks can operate to grow, and that environment is well established in India, but I need it to be a bit more dynamic… some work is happening on it,” she said.