The department of financial services (DFS) will organise a two-day ‘Manthan’ with public sector banks (PSBs) on September 12-13 to discuss interest rate cut transmission, credit growth, deposit mobilisation, and possibly exchange of ideas on consolidation in the PSB space at an opportune time to create global-scale banks.
The exchange of ideas will likely touch upon reforms required to increase productivity, deepen digital and data capabilities, and build future readiness in terms of resilience and governance.
Meeting will be headed by DFS secretary M Nagaraju
The meeting, which will be chaired by DFS secretary M Nagaraju, will likely discuss how to transform PSBs into stronger institutions, sources said.
The previous mergers among PSBs have yielded good results in the past, and could explore the synergies, if any, and look at them for further consolidation in due course.
In 2019, the Indian government announced a major consolidation of PSBs, reducing the number of PSBs from 27 to 12 through mergers. This involved merging 10 PSBs into 4 larger entities, with the remaining 6 staying independent.
Currently, only two Indian banks, SBI and HDFC, are in the top 100 global banks by total assets, which is not enough, comparison to banks from China as well as the US.
Expansion of bank credit
With banking to play a pivotal role in driving India’s ambition of becoming $30 trillion economy by 2047, the bank credit to the private non-financial sector should reach around 130% of GDP from 56% now, sources said.
As of June 30, 2025, credit outstanding touched Rs 183.4 lakh crore, registering a growth of 9.9% y-o-y compared to 18.8% in Q1FY25. The slowdown in overall credit offtake was primarily driven by a slowdown in the growth of NBFCs, wherein credit growth to the NBFC segment dropped sharply from 8.5% in Q1FY25 to 2.6% in Q1FY26.
Additionally, credit growth in the services and personal loan segments declined significantly, decelerating to 9.0% and 12.1% in Q1FY26 from 17.4% and 25.6%, respectively, a year earlier, CareEdge said in a note.
FDI in India’s private banking sector is allowed up to 74% in private sector banks, with 49% permitted through the automatic route. In public sector banks, the FDI limit is 20%. While foreign entities can own up to 74% in private banks, individual foreign entities are typically capped at 15%, unless the Reserve Bank of India grants an exception.