PSB consolidation to gain momentum in 2026 as govt eyes big, world-class banks

Consolidation in Public Sector Banks - The government aims to accelerate consolidation in public sector banks to create larger, world-class banks by 2047, as stated by Finance Minister Nirmala Sitharaman [1][2] - Currently, there are 12 public sector banks, with only the State Bank of India (SBI) ranked among the global top 50 banks by assets, positioned at 43rd [2] Historical Context of Consolidation - The government has previously conducted two rounds of consolidation, reducing the number of public sector banks from 27 in 2017 to 12 in 2019 through major mergers [3][4] - Notable mergers include the consolidation of United Bank of India and Oriental Bank of Commerce with Punjab National Bank, and others involving Syndicate Bank, Allahabad Bank, and Andhra Bank [4][5] Financial Performance of Public Sector Banks - In the first half of FY25-26, the 12 public sector banks reported a net profit of ₹93,675 crore, a 10% increase from ₹85,520 crore in the same period of the previous fiscal year [7] - The net profit for public sector banks is projected to exceed ₹2 lakh crore by the end of FY26, following a record profit of ₹1.78 lakh crore in the previous financial year, which was a 26% increase from ₹1.41 lakh crore in FY24 [8] Foreign Investment Trends - The private sector banking space has seen significant foreign capital inflow, exemplified by Sumitomo Mitsui Banking Corporation acquiring a 20% stake in Yes Bank for ₹13,483 crore [9] - Emirates NBD Bank also announced plans to acquire a 60% stake in RBL Bank for ₹26,853 crore, indicating the attractiveness of India's financial institutions to foreign investors [10] Regulatory Developments in the Insurance Sector - The passage of the Sabka Bima Sabki Raksha Bill allows for 100% foreign direct investment in the insurance sector, which is expected to attract new capital and enhance competition [11][12] - The removal of the 18% GST rate on individual policy premiums has improved affordability and access to insurance products [12][13]