Last month, Finance Minister Nirmala Sitharaman said India needs many large, world-class banks and work in this area has already started.
The government has started talks with the Reserve Bank and public sector banks, she said, dropping plenty of hints about public sector consolidation.
Currently, there are twelve public sector banks, and only the country’s largest lender, State Bank of India (SBI), is among the global top 50 by assets. SBI ranks 43rd globally by assets, followed by private sector HDFC Bank at 73rd.
In an effort to create bigger banks, the government previously carried out two rounds of consolidation. In the largest consolidation exercise in the banking sector, the government announced four major mergers of public sector banks in August 2019, bringing the total number down to 12 from 27 in 2017.
With effect from April 1, 2020, United Bank of India and Oriental Bank of Commerce have been merged into Punjab National Bank; Syndicate Bank was merged with Canara Bank; Allahabad Bank was merged with Indian Bank; and Andhra Bank and Corporation Bank were consolidated with Union Bank of India.
In 2019, Dena Bank and Vijaya Bank were merged with Bank of Baroda. Previously, the government had merged five associate banks of SBI and Bharatiya Mahila Bank with the State Bank of India. This happened in April 2017 with the intention of making SBI much bigger.
As for the State Bank of India, the bank’s board in 2016 submitted a proposal to the government to merge its five subsidiaries, including the country’s first women-focused lender, Bhartiya Mahila Bank, with itself.
The merged entity expanded SBI’s asset base to ₹44 lakh crore with effect from April 1, 2017, with 22,500 branches and 58,000 ATMs.
SBI first merged State Bank of Saurashtra with itself in 2008. Two years later, the State Bank of Indore was merged.
Moreover, the government has initiated the privatization of IDBI Bank and Department of Investment and Public Asset Management (DIPAM) secretary Arunish Chawla had expressed hope that the strategic sale would be completed by March 2026.
As part of the privatization, the government sold its controlling 51 percent stake in IDBI Bank to Life Insurance Corporation of India (LIC) in January 2019.
In terms of profitability of public sector banks, 12 banks, accounting for around 60 per cent of the market share in the total business, together reported a net profit of ₹93,675 crore in the first half of 2025-26. This is 10 per cent higher than ₹85,520 crore in the April-September period of FY25.
Going by the trend, the net profit of public sector banks is expected to cross the ₹2 lakh crore mark by the end of FY26.
The previous financial year ended with PSU banks posting record profits of ₹1.78 lakh crore, compared to ₹1.41 lakh crore in FY24, a growth of 26 per cent.
On the other hand, private sector banking witnessed large inflows of foreign capital.
For example, Japan’s Sumitomo Mitsui Banking Corporation (SMBC) decided to acquire a 20 percent stake in Yes Bank for ₹13,483 crore in May. The deal closed in September, with the stake transferred to the Japanese company.
In October, Emirates NBD Bank, the second largest in the UAE, decided to acquire a 60 per cent majority stake in RBL Bank for ₹26,853 crore.
“India’s financial institutions remain structurally attractive to foreign investors, driven by constructive structural trends and a supportive regulatory environment. We expect credit growth to remain at 11-12 percent, with retail loans growing the fastest,” said Deepali Seth Chhabria, Associated Director of S&P Global Ratings.
As far as the insurance sector is concerned, the historic Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act, 2025 was passed by Parliament this year, paving the way for 100 percent foreign direct investment in the sector.
“Probably the most defining development of this year was the decision to open the sector to 100 percent foreign direct investment. This is a meaningful step that can bring in fresh capital, global expertise and new ideas, while attracting more foreign players and bringing healthy competition,” said Generali Central Life Insurance MD and CEO Alok Rungta.
Moreover, the GST rate cut, which came into effect on September 22, made premiums for individual policies more affordable as the 18 percent rate was completely abolished.
The non-life insurance industry witnessed a row between hospitals and health insurers over cashless treatment.
“The abolition of GST improved affordability and access, while continued advancements in platforms such as the National Health Claims Exchange and Bima Sugam helped reduce friction across purchasing, service and claims. Together, these developments strengthened confidence in the system and supported broader adoption,” said Aditya Birla Health Insurance, MD & CEO Mayank Bathwal.
There was a net inflow of foreign capital into the sector during the year. Kotak Mahindra General Insurance, a promoter of Kotak Mahindra Bank, in February decided to sell its 70 per cent stake in the insurance company for a total consideration of around ₹5,560 crore.
As far as foreign capital outflows are concerned, a major announcement in this regard was the exit of Allianz Germany from Bajaj Finserv.
Bajaj Finserv proposed to acquire Allianz SE’s 26 per cent stake in the erstwhile Bajaj Allianz General Insurance Company and Bajaj Allianz Life Insurance Company for ₹24,180 crore.
Published on December 26, 2025
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