The PM Economic Advisory Council (EAC-PM) has recommended that India consolidate its banks to create a few large institutions of similar size without compromising market competition, according to a report published by the council and reported by Business Today. Authored by Soumya Kanti Ghosh and Tapas Kumar Parida, the report argues that reforms over the past decade — including the Asset Quality Review (AQR), insolvency laws and earlier bank consolidations — have sharply improved banking efficiency and reduced bad loans. India, the authors said, would need larger, globally competitive financial institutions to meet the economy's expanding credit requirements as it seeks to become a developed nation by 2047.
Consolidation blueprint for global scale
The report's central recommendation is direct. According to the report:
In this context, India should make efforts to consolidate the banks in such a manner that a few big banks of equal size would be created, without compromising market competition in the industry.
Beyond the merger blueprint, the report sets out operational priorities for banks. They must narrow the credit-deposit gap, mobilise stable low-cost deposits, and curb concentration in high-risk unsecured retail loans while expanding credit to MSMEs, infrastructure and green investments, according to the report.
Efficiency turnaround: numbers behind the push
To measure efficiency, the study treated banks as institutions that use resources such as fixed assets, borrowed funds, operating expenses and employee costs to generate loans, deposits, investments and net profits. The findings cover a 12-year period from FY15 to FY26 and show a significant turnaround in banking efficiency.
The mean technical efficiency of scheduled commercial banks fell from 91.3% in FY15 to 78% in FY20 as bad loans were recognised and the Covid pandemic hit, before recovering to 88.3% in FY26. Public sector banks led the recovery, with their average technical efficiency dropping to 72.5% in FY20 and then climbing to 93.1% in FY26 after recapitalisation and digital upgrades, according to the report.
| Metric | FY15 | FY20 | FY26 |
|---|---|---|---|
| Mean technical efficiency – all scheduled commercial banks | 91.3% | 78.0% | 88.3% |
| Mean technical efficiency – public sector banks | — | 72.5% | 93.1% |
What banks must do beyond mergers
Consolidation alone is not the answer, the authors argue. Banks need to mobilise stable low-cost deposits and narrow the credit-deposit gap to fund credit growth sustainably. The report also warns against concentration in high-risk unsecured retail loans, calling instead for expanded lending to MSMEs, infrastructure and green investments. These recommendations, according to the report, are designed to support India's ambitions of becoming a developed nation by 2047.
Implications for corporate and trade finance
For finance executives, treasury professionals and investors tracking trade-affected markets, the report offers a concrete benchmark of banking sector health. Public sector banks reached 93.1% mean technical efficiency in FY26 — up from 72.5% in FY20 — indicating that earlier recapitalisation and digital investments are delivering measurable results, according to the study. The council's stated goal of creating a few big banks of equal size, combined with its explicit priority on MSME, infrastructure and green lending, points to the lending areas a consolidated banking system is expected to serve as India's credit demands grow toward 2047.
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