Home / Business and Economy / EAC-PM: Consolidate Banks for Economic Might
EAC-PM: Consolidate Banks for Economic Might
26 Aug
Summary
- Indian banks should consolidate into a few large, equally sized entities.
- Mergers have reduced public sector banks from 27 to 12 since 2017.
- AI and digitization are poised to significantly boost banking efficiency.
India's banking sector is undergoing a significant transformation, as recommended by the Economic Advisory Council to the Prime Minister (EAC-PM). A working paper suggests consolidating banks to create a few large, equally sized institutions, a move intended to support the nation's credit needs for its 'Viksit Bharat' aspirations by 2047 without hindering market competition. This strategy builds on recent consolidations, which have reduced the number of public sector banks from 27 to 12 through mergers like SBI's associate banks in 2017 and the 2020 consolidation of 10 PSBs into four. These mergers aimed to enhance capital bases and project financing capacity, with operational synergies being a key benefit.
Analysis using Data Envelopment Analysis (DEA) from FY15 to FY26 indicates improvements in bank efficiency, with public sector banks showing higher efficiency in FY26 compared to private and foreign banks. Looking ahead, the EAC-PM foresees a future where digitization and artificial intelligence will drive autonomous, self-optimizing banking ecosystems. Hyper-personalization through AI is expected to tailor services for individual customers, shifting the sector from reactive to proactive engagement, thereby deepening customer relationships and fostering institutional loyalty.
