EAC moots consolidation to create a few large banks

New Delhi: India needs to consolidate banks into a few large ones of comparable size, without harming competition, to meet rising credit needs to achieve Viksit Bharat by 2047, suggested a paper by the Economic Advisory Council to the prime minister (EAC-PM).

Though the concentration in the banking industry is low, the market share of the banks varies significantly, starting from 20% to below 1%, the paper pointed out. "In this context, 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," it said.

Titled 'Reforms, Efficiency, and Productivity of the Indian Banking Sector in the Last Decade: A DEA Approach', the paper by Soumya Kanti Ghosh and Tapas Kumar Parid noted that the long-term positive outlook of India remains intact and its sovereign rating remains stable at BBB after its revision in August 2025.


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"Given the strong fundamentals, such as a high savings rate, adequate FX reserves at more than $700 billion, well-capitalised banking and a cash-rich corporate balance sheet, the long-term outlook of high growth is feasible," it said.

Banking in India will change in the long term, the paper said. "Banks will increasingly focus on data-driven customer experiences, AI automation, and robust data security," it stated, adding that India, being a multi-language country, will see the creation of foundational AI models gather pace. "Banks will be exploring at a suitable time to harness these India-specific foundational models for multiple language onboarding and hyper-customisation of services."

The paper said the banking sector has undergone a significant regime change since 2014, especially in post-asset quality review (AQR) period. With the efforts of the Reserve Bank of India and the government, the sector has been moved from a period characterised by under-recognised corporate stress, weak public-sector bank capitalisation and constrained credit creation to one of the historically low NPAs, strong common-equity buffers, sustained profitability and accelerating credit growth.

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Scheduled commercial banks' year-on-year credit and deposit growth reached 19.3% and 15.4%, respectively, as of July end, up from 9% and 10.7%, respectively, in FY15, the paper noted. Gross NPA ratio has declined to a multi-decadal low level of 1.68% in June 2026, from 11.5% in end March 2018, it added.

Going forward, the agenda for banks will be to mobilise stable deposits to support credit expansion, avoid excessive concentration in unsecured retail or rapidly growing segments, deepen productive lending to MSMEs, infrastructure and green investment.