PSB Overhaul Ahead: Consolidation, Higher FDI, and Greater Autonomy
The Prime Minister’s Office (PMO) will review a reform plan for Public Sector Banks (PSBs) ahead of the 2026–27 Budget. Proposals from the Department of Financial Services aim to make PSBs more competitive and better aligned with global standards.
Key Highlights of the Proposed Reforms:
- Bank Consolidation: A new round of PSB mergers may follow the 2017 and 2019–20 mergers that reduced the number of PSBs from 27 to 12. It is expected that the merger will result in larger banks with stronger risk management, operational efficiency, and the capacity to meet growing credit demand.
- Enhanced Autonomy: Greater operational and board-level autonomy is proposed to improve decision-making, governance, and responsiveness to market demands.
- Foreign Direct Investment (FDI): The government is considering a phased increase in the FDI limit from 20% to 49%. It is expected that Higher foreign investment will strengthen capital bases and attract strategic global partners.
- Privatisation: Select PSBs, first identified in the 2021–22 Budget for privatisation, may be reconsidered to create globally competitive lenders. The goal is to develop at least two PSBs capable of ranking among the world’s top 20 banks.
- Strategic Planning: Inter-ministerial consultations are nearing completion, and key decisions are expected following the government review. The recommendation complements the RBI’s and the government’s strategies to improve credit capacity and operational efficiency.
Conclusion:
Reviving PSB reforms marks a strategic effort to modernise India’s public banking sector. By combining mergers, autonomy, FDI liberalisation, and selective privatisation, the government aims to create robust, globally competitive banks capable of supporting India’s economic growth and international ambitions.
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