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In November last year, Finance Minister Nirmala Sitharaman made a striking case for scale in Indian banking.
India, she said, needed “a lot of big banks, world-class banks”. More importantly, she said the government was already looking at the issue and that “work has already commenced”, with discussions taking place with the Reserve Bank of India and banks.
The remarks immediately revived the prospect of another round of public sector bank consolidation, five years after the government merged 10 state-owned banks into four, reducing the number of public sector banks from 27 to 12.
Nearly a year later, however, there is no “Merger 2.0”.
In fact, the government’s position has since become considerably less definitive. In December 2025, the Finance Ministry told the Lok Sabha that no proposal on merger or consolidation of public sector banks was under consideration.
By February this year, Sitharaman herself said she was “not familiar with any roadmap” for public sector bank mergers and that there was no such roadmap. Instead, she pointed to the High Level Committee on Banking for Viksit Bharat, announced in the 2026-27 Budget, saying it would examine how to strengthen Indian banking.
That raises a fairly straightforward question: if work had already commenced in November, what came out of it?
There is no public answer yet.
From big banks to a big reviews
The government has not dropped banking reform from its agenda. But it has broadened the question considerably.
The Union Budget said Indian banks were entering this phase with strong balance sheets, high profitability, improved asset quality and extensive geographical coverage. It proposed a High Level Committee on Banking for Viksit Bharat to comprehensively review the sector and align it with India’s next phase of growth, while protecting financial stability, inclusion and consumers.
The difficulty is that this is a broad mandate. It does not say whether the answer to India’s need for scale is consolidation, organic growth, greater access to capital, regulatory changes, or some combination of these.
And the committee itself has taken time to materialise.
At the August 2026 PSB Confluence, Sitharaman said the high-powered committee would be announced “soon” and that the two-day discussions among public sector banks and financial institutions would provide substantive material for its deliberations.
The confluence itself focused on seven themes, including deposit mobilisation, financing the investment cycle, banking for youth, global capability centres, agriculture and horticulture infrastructure, credit-card innovation and priority-sector lending. It did not produce a bank-merger programme.
As of September, the committee was still being finalised. The Economic Times reported on 23 September that the government was likely to announce it by the end of October, with its composition and terms of reference still being worked out.
That is a significant delay when measured against the Finance Minister’s November 2025 assertion that work on creating larger banks had already begun.
The idea hasn’t disappeared
There is, however, evidence that the question of scale has not disappeared from policy discussions.
A recent paper by the Economic Advisory Council to the Prime Minister argues that India’s banking sector has undergone a substantial transformation since the clean-up of bank balance sheets that followed the 2015 Asset Quality Review. Gross NPAs, capital adequacy and profitability have all improved sharply.
The paper’s significance for this story is that it raises the question of what comes after balance-sheet repair.
According to The Economic Times, the EAC-PM paper recommends efforts to consolidate banks in a manner that creates a few large banks of broadly equal size without compromising competition.
But this is a recommendation, not government policy.
The distinction is important. The government’s formal position remains that there is no proposal to merge or consolidate public sector banks. The EAC-PM paper does not change that position by itself.
Still, it demonstrates that the argument Sitharaman made last year has not vanished from the wider policy debate.
What does “big” actually mean?
This is perhaps the more important question.
The government’s 2020 consolidation exercise was built around the argument that larger banks could achieve economies of scale, improve lending capacity and compete more effectively.
But size is not the same thing as strength.
India’s public sector banks are now considerably healthier than they were before the last consolidation exercise. Their aggregate gross NPA ratio fell to 1.9 percent by March 2026, while their combined net profit reached a record ₹1.98 lakh crore in FY26, according to figures cited at the August PSB Confluence.
The question now is whether that stronger balance sheet should be used as a platform for another round of consolidation—or whether existing banks should simply be allowed to grow.
At the August confluence, the government’s own messaging suggested that mergers were only one possible route. Business Standard reported a senior finance ministry official saying that a few banks with global scale could enhance India’s international financial presence, but that mergers were not the sole determinant of global competitiveness.
That distinction matters.
If the government wants larger banks, there are several ways of getting there: mergers, organic expansion, greater capital mobilisation, international expansion or regulatory changes that allow existing institutions to become significantly larger.
But almost a year after Sitharaman first raised the issue, the government has not publicly articulated which of these routes it prefers.
So what happened to the big-bank push?
The honest answer, at least for now, is that it is difficult to see a clear policy trail from the Finance Minister’s November 2025 statement to a concrete proposal.
There is no announced merger. There is no consolidation roadmap. There are no identified banks.
There is a proposed committee whose mandate remains broad and whose composition and terms of reference are still being finalised. And there is an EAC-PM recommendation that points in the direction of larger banks, but which is not itself government policy.
That leaves a gap between the case for scale and the mechanism for achieving it.
The government may ultimately decide that India needs fewer, larger banks. It may conclude that existing lenders can become globally competitive without further mergers. Or the forthcoming banking committee may recommend something in between.
For now, though, the “big bank” proposition remains just that—a theory.
And the question the government will eventually have to answer is the one raised by its own Finance Minister nearly a year ago:
These pieces are being published as they have been received – they have not been edited/fact-checked by ThePrint.