EAC-PM recommends consolidating Indian banks into large-scale institutions

The Economic Advisory Council to the Prime Minister (EAC-PM) has recommended the consolidation of Indian banks to create several large-scale institutions of similar size. The goal is to meet the growing credit demands of an economy aiming to become developed by 2047, particularly in sectors like infrastructure, manufacturing, and renewable energy.

According to a working paper, current market shares in the Indian banking industry vary significantly, ranging from 20 percent to less than 1 percent. The EAC-PM suggests that creating larger banks would provide a stronger capital base, wider geographical reach, and a greater capacity to finance large-scale projects. This follows previous consolidation efforts between 2017 and 2020, which reduced the number of public sector banks from 27 to 12.

The report emphasizes that mere size increases are insufficient for success. Effective integration depends on technological synergy, harmonizing risk cultures, and improving productivity. The study notes that while previous mergers aimed to rescue weak banks, future efforts should focus on efficiency. The council warns that if management and governance do not improve alongside size, larger banks could pose new risks to the economy.