Public Sector Banks, combined under one banner, are recognized by SBI as potential rivals who can contest alongside them
In a significant shift for India's banking landscape, the consolidation of public sector banks (PSBs) in the 2019-20 period has resulted in a more competitive environment, particularly between the State Bank of India (SBI) and the amalgamated PSBs.
The mega consolidation saw 10 PSBs consolidated into four, creating banks with greater scale, cost benefits, and increased ability to support larger ticket-size lending. A year prior to this, Vijaya Bank and Dena Bank were merged with Bank of Baroda (BoB), setting the stage for the larger consolidation that followed.
Currently, there are 12 PSBs in India, with BoB, now the second-largest PSB by asset size, posing a significant challenge to SBI's dominance. The amalgamated PSBs have increased their market share in lending, particularly in working capital and demand loans, traditionally the domain of businesses.
Despite slower overall credit growth in FY25, these banks leveraged their balance sheets more prudently than private banks and gained ground in retail segments like housing loans. PSBs' share in home loan origination rose sharply to 43%, an increase from 34% in FY22, overtaking private banks that dropped from a 42.6% to 29.8% share.
The government’s policy of amalgamating smaller PSBs into larger entities has led to bigger, better-capitalized banks with greater balance sheet strength, improving their competitiveness against SBI. Former SBI Chairman Dinesh Khara highlighted that PSBs now have stronger balance sheets than some private banks and benefit from extensive networks and deposit bases.
Experts caution that consolidation must achieve real scale to manage shocks effectively. Scale provides trust and resilience necessary in banking, making amalgamated PSBs more robust competitors to SBI and private banks alike.
SBI remains the largest bank with unmatched scale and a dominant presence, but amalgamated PSBs are closing the gap by growing market share steadily and stabilizing asset quality. While SBI continues to lead, the amalgamated PSBs collectively leverage their combined resources and improved capitalization to better challenge SBI’s dominance, especially in regional markets and sectors such as mortgages and working capital loans.
However, challenges remain. Foreign investment caps and the need for further reforms remain bottlenecks in realizing full PSB potential. Relaxation of foreign ownership norms could help these banks attract more capital and technical expertise, further augmenting their ability to compete at par with SBI and global banks.
| Aspect | State Bank of India (SBI) | Amalgamated PSBs | |------------------------------|------------------------------------------|-----------------------------------------| | Market Share | Largest bank, dominant presence | Increasing market share, closing gap | | Lending Growth | Steady growth, strong retail mortgage presence | Outpaced private banks recently, strong in business and retail loans | | Capital & Scale | Massive scale, strong capitalization | Improved scale via mergers, stronger balance sheets | | Competitive Advantages | Extensive network, brand trust | Network benefits, government backing, scale from consolidation | | Challenges | Maintaining growth and technology adoption | Need for scale, foreign investment reform needed |
Union Finance and Corporate Affairs Minister Nirmala Sitharaman has observed that India needs at least four or five SBI-size banks to meet the growing needs of the economy. As SBI may seek opportunities for growth through acquisitions or be required to undertake mergers mandated by the RBI, the competition between SBI and the amalgamated PSBs is expected to intensify further.
- The consolidation of public sector banks (PSBs) in India has created banks with greater scale and cost benefits, allowing them to support larger ticket-size lending.
- Currently, Bank of Baroda (BoB), now the second-largest PSB by asset size, poses a significant challenge to the dominance of the State Bank of India (SBI), particularly in business lending.
- Despite slower overall credit growth, PSBs have gained ground in retail segments like housing loans, with their share in home loan origination rising to 43%, overtaking private banks.
- The government's policy of amalgamating smaller PSBs into larger entities has led to banks with stronger balance sheets than some private banks, benefiting from extensive networks and deposit bases.
- Experts believe that consolidation must achieve real scale to manage shocks effectively, making amalgamated PSBs more robust competitors to both SBI and private banks in various sectors such as mortgages and working capital loans.
- Union Finance and Corporate Affairs Minister Nirmala Sitharaman has suggested that India needs at least four or five SBI-size banks to meet the growing needs of the economy, indicating potential for further consolidation and increased competition between SBI and amalgamated PSBs.
