Clipped from: https://www.thehindubusinessline.com/opinion/do-we-really-need-large-banks-now/article70308591.ece
With lacklustre credit demand from industry and the need to reduce infra financing by banks, they aren’t required for now
Chinese government-owned banks such as Industrial and Commercial Bank of China, Agricultural Bank of China, China Construction Bank and Bank of China hold assets worth a whopping $22 trillion | Photo Credit: CHINA DAILY
The Indian banking sector has been an island of calm, standing steady when turbulent winds buffeted global financial systems. While there have been phases when non-performing assets ballooned, or some segments or entities witnessed lot of stress, the conservative approach adopted by the Indian central bank has largely ensured that the sector sails smoothly, largely unscathed.
It is against this background that the ongoing discussion on creating large, global scale banks, needs to be viewed. The idea appears to be led by two factors. One, some seem to think that not having large banks is depriving the Indian economy, particularly the private sector, with funds needed to scale up and grow.
Two, Indian banks rank quite low among the large global banks, based on assets. This is being used to argue that for the economy to scale to $7.3 trillion by 2030, the size of the banks needs to be much larger so that they can fund organic and inorganic expansion of companies. While this may be partially true, there does not appear to be a need for large banks at this juncture when viewed from demand perspective. Demand for bank credit from industries has been very weak in recent past and infrastructure financing is best left to development financing institutions. M&A deals have not been too big in the recent past either. With non-bank sources of finance also reviving, it may be best to go slow on this front.
The global giants
A glance at the S&P Global’s list of world’s largest banks, ranked according to their assets as of April 2025, shows that the top 20 banks are behemoths wilfully created by countries to support political agendas or through excessive exposure to market risk.
Chinese government-owned banks such as Industrial and Commercial Bank of China, Agricultural Bank of China, China Construction Bank and Bank of China are well ensconced in the first four ranks, holding assets worth a whopping $22 trillion. Twenty-one banks based in mainland China find a place in the top 100 with seven in top 20.
Ranks five and six are occupied by the American giants, JP Morgan Chase and Bank of America followed by HSBC holding of UK and BNP Paribas and Credit Agricole Group of France. Japan’s Mitsubishi UFJ is the other bank which finds a place in the top ten largest banks by asset size.
Assets of Indian banks
Only two Indian banks are featured in this list, SBI and HDFC Bank. While SBI has improved its ranking from 47 in 2024 to 43 now, HDFC Bank has moved up one place this year to 73. But the assets of Indian banks are nowhere close to the global giants. SBI’s total assets amounted to $846 billion and HDFC Bank held assets worth $494 billion.
In fact, the total assets held by Indian scheduled commercial banks, as of March 31, 2024, amounted to just $3.38 trillion. This is only half of the assets of Industrial and Commercial Bank of China, which occupies the top position.
Some media reports are suggesting that consolidation of public sector banks could be one way to create large banks. In 2020, 27 PSU banks were consolidated into 12 to form larger entities. Consolidation of public sector banks is not a bad idea as it can provide heft to the large PSBs, improve governance and efficiencies and ultimately benefit the customer.
But doing so with the intention of creating global scale large banks may not really work. The total assets of all PSU banks equal $1.8 trillion as of March 2024. Even if all the PSU banks were merged into one entity, the bank would still be ranked 18th on the global large banks list. But then, merging PSU banks is more easily said than done given the cultural differences within the organisation and the pushback from the workforce.
Allowing increased foreign or corporate ownership in banks comes with its own bundle of risks. The tight fiscal situation of the Centre may hinder government creating a large bank out of budgetary resources. With Indian savers already parking most of their savings in banks, there is little room to increase the deposit base to create large lending entities.
Is there a need?
The more important question is, do we really need large banks at this juncture? The three segments that are intended to benefit from large banks are corporate borrowers, infrastructure finance and M&A finance.
Credit growth to industries has been quite sluggish in recent times and banks have channelised more credit to individual borrowers to sustain their operations. Share of loans to industry has decreased from 39.5 per cent of bank credit in August 2016 to 21.5 per cent in August 2025. But in the same period, share of credit to retail or individual borrowers has increased from 22 per cent to 33 per cent.
Most companies have been postponing large capital investments in recent years, except for few industries such as renewables and chemicals, leading to lower demand for project finance.
Two, they have been using non-bank sources of funds such as internal accruals, the corporate bond market and external commercial borrowings to meet their financing requirements. This is not a bad thing. Not only does it prevent concentration of default risk in the banking sector, but the bond markets will also get a boost if more companies begin looking beyond banks for funds.
It is moot whether commercial banks should tie up their funds in infrastructure financing. Not only does it lead to asset-liability mismatches, but it also increases risk given the long gestation and pay-back period in these projects. It is for this reason that the National Bank for Financing Infrastructure Development was set up in 2021 to support long-term infrastructure financing in India, it has already sanctioned loans worth ₹2.03 lakh crore as of end March 2025. Infrastructure financing is best handled through such development institutions which can access long-term loans from global multilateral institutions to finance their operations.
It can be argued that more funding is needed for M&A financing. But the average value of M&A deals between 2019 and 2024 was only ₹3.7 lakh crore per year. This is not very difficult to service with the assets held currently by the banking sector.
Finally, PSU bank consolidation may not be a bad idea, but there appears little reason to try and create large banks which can be counted among the top 20 global biggies.
Published on November 22, 2025
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