role of big banks
India is now moving towards creating big banks of global level. Banks that can provide funding on a large scale to meet major needs like infrastructure, manufacturing and technology. The government’s new focus on merging public sector banks (PSBs) not only reflects domestic reforms but is also part of a larger strategy to put Indian banks at par with the world’s largest financial institutions. This step is in line with the country’s long-term goal of Developed India 2047. Under this goal, India has to become a developed economy and for this it is necessary that the banking sector should have large size, strength and better competition so that rapid growth can continue.
India aims to create at least two global-level banks among the top 20 banks of the world. The Roadmap of Developed India 2047 envisions an economy that can raise funds for its own development. For this, the banking system should be so strong that it can give loans on a large scale for sectors like green energy, smart cities and advanced manufacturing. Recently, Union Home Minister Amit Shah also reiterated this goal and gave a message to the banking sector that they should not just aim at development, but also increase their scale. His statement matches the need that India should move beyond the system of many small banks towards some big, important and global-level banks, which can become the backbone of the 10 trillion dollar economy.
Why the need to merge banks?
India’s banking system has been falling into pieces for many years. Where many public sector banks played similar roles with different forces. In 2020, the government took a big step by merging 27 public sector banks into 12. Its objective was to create such banks which have strong balance sheet and greater reach. This step increased efficiency slightly and the weak banks got stability by going with the strong banks. But even after this reform, India did not come very high in the world’s top banking list. Today 12 public sector banks have total assets of Rs 171 trillion. Which is less than even reaching the level of Wells Fargo, the world’s 15th largest bank.
Now the government wants to take this process to the next level. This time, consideration is being given to merging strong mid-sized government banks like Bank of Baroda, Bank of India and Bank of Maharashtra. Like before, this step is not just to save weak banks. Rather, it is to create big, strong banks of global standard.
Why does bank size matter?
The size of a bank in the world is important in many ways. Such as funding big projects, managing risks and raising money at cheap rates in international markets. SBI, India’s largest bank, has assets of about $846 billion and is ranked 43rd in the world in S&P Global’s 2024 rankings.
To be in the top 10, SBI will have to at least triple its balance sheet. Whereas at number 10 is Japan’s MUFG Bank, which has assets of more than $2.6 trillion. This difference is not just a number. Big banks can easily fund infrastructure projects worth billions of dollars and can raise money at better terms globally.
challenges ahead
This dream of India comes with challenges. Many experts say that the aim should not just be to rise in the global rankings, but should also focus on profitability, better management and customer service.