The latest report on the PMO convening a meeting to discuss sweeping reforms in Public Sector Banks (PSBs), including fresh mergers, higher autonomy, and a steep hike in the FDI limit, compels us—especially as stakeholders representing officers, employees, and the banking public—to critically examine the real intent, implications, and past experiences of such reforms.

At the heart of the proposal is the plan to reduce the number of PSBs from 12 to just 3 or 4, build two mega Indian banks capable of entering the global top 20, and raise the FDI limit to 49 %. On paper, these appear to be ambitious structural reforms. But as trade‐unionists who have witnessed the ground realities of consolidation exercises, we must ask a fundamental question:

Has the Government ever studied the real outcomes of the earlier mergers?

Before initiating yet another round of amalgamations, has any data‐driven assessment been done on:

Whether the previous mergers (2017–2020) — involving the absorption of weaker banks into stronger ones — actually benefitted anyone, including:

• customers,

• employees,

• operational efficiency,

• credit flow to MSMEs,

• rural banking penetration,

• service quality, or even

• the exchequer itself?

Studies indicate that while scale improved, the results remain mixed — for example one recent paper notes “while mergers have enhanced capital strength and scale, profitability and NPAs continue to present challenges.” 

Did these mergers reduce NPAs in real terms, or merely mask them under a larger balance sheet?

Were there measurable improvements in governance, accountability, or branch-level service delivery?

Have the costs of integration — in terms of lost staff morale, disruption of operations, branch realignments — been assessed and borne by someone? Some literature suggests significant integration issues. Advances in Consumer Research

Were employees consulted? Were their rights, transfers, and working conditions handled with sensitivity, or were they made to silently bear the administrative chaos?

A glaring missing item: The merger exercise reportedly cost PSBs extremely large sums (runs into more than ₹15,000 crores for integration alone) – yet no transparent accounting has been placed in the public domain as to who benefitted from that huge outlay. Surely not the common stakeholder.

In short — the evidentiary base for “mega‐mergers = benefit to all” is at best incomplete; at worst, it is being assumed without robust justification.

Do Bigger Banks Mean Stronger Banks?

The argument for “two large Indian banks capable of entering the global top 20” reflects a dangerous obsession with size rather than stability. History teaches us otherwise.

The 2007–2008 Global Financial Meltdown, The global crisis clearly demonstrated one lesson:

When big banks fail, entire economies fall.

Lehman Brothers, Washington Mutual, RBS and scores of “too‐big‐to‐fail” institutions collapsed because their size became a systemic risk.

India survived the crisis not because it had large banks, but because it had reasonably sized, well-capitalised PSBs, each serving unique regional and sectoral needs.

The push for mega banks risks creating:

• Huge monopolies,

• Systemic vulnerabilities,

• Massive operational disruptions, and

• A reduced presence in rural and semi-urban India, where only PSBs currently operate.

Moreover, the argument that scale automatically yields global competitiveness ignores the fact that global banks rank in trillions of dollars of assets — the domestic PSBs even post consolidation are far behind. The Economic Times+1

Is Reducing PSBs from 12 to 3–4 a Rational Reform?

Or is it a strategy to gradually shrink the public sector banking presence and open the doors for private take-over through the proposed 49 % FDI?

Reducing the number of PSBs may lead to:

• Loss of regional identity, expertise and local knowledge in banking,

• Disappearance of localized decision‐making, replaced by centralised hub‐and‐spoke mandates,

• Branch focus shifting away from remote/unbanked areas,

• Reduced competition among PSBs themselves, and hence less pressure to serve the unserved,

• Threat to employment and career progression of lakhs of officers and employees who formed the backbone of PSBs.

If the goal is strengthening PSBs, why is the direction towards shrinking?

Indeed, if the Government’s objective was simply fewer weaker banks, why not invest in making each existing bank stronger, rather than reduce numbers and increase size?

Recapitalisation, Basel III Norms and the Avoidance of Responsibility

While we discuss structural reform, we must not overlook the fundamental capital base issue of PSBs. Recall that under the framework of Basel III norms, PSBs were required to bolster their Tier-1 capital, improve risk-weighted asset (RWA) management, and maintain adequate buffers. The Government of India had to recapitalise PSBs accordingly. Yet we note the following concerning developments:

The recapitalisation packages announced in earlier years (FY17–FY22) indeed supported loss-making banks. But since then, new support has been notably scarce.

The bond market for large scale fundraising is “not so lubricative” now — yields are high, appetite limited. That means public sector banks cannot efficiently raise capital externally, yet the Government appears reluctant to invest fresh recapitalisation.

RWAs are not being managed properly: risk weights remain high, provisioning burdens are large, yet the strategy seems to be merging banks rather than tackling the root causes (weak governance, legacy NPAs, poor underwriting).

The core issue is: the Government is effectively attempting to escape the responsibility of providing recapitalisation by saying “we’ll merge banks instead of pumping fresh capital”. That is neither transparent nor fair.

In other words: merely merging banks to reduce numbers without providing fresh capital undermines the spirit of Basel III and exposes the system to latent fragility.

Why Push FDI in PSBs to 49 %?

A near-half foreign investor participation raises uncomfortable but critical questions:

• Whose interest will such mega PSBs ultimately serve?

• Can a country’s financial sovereignty be partly outsourced?

• Will rural and priority sector lending be compromised by private/foreign influence?

• If the Government does not wish to invest fresh capital, is it seeking to bypass recapitalization by opening the door to FDI?

• When profit becomes the dominant motive (as foreign strategic investors expect a return), will the social banking obligations of PSBs recede?

• Autonomy or Abdication of Responsibility?

The proposal to give PSB boards sweeping powers—especially hiring from outside—may appear modern, but could lead to:

• Induction of private‐sector ethos incompatible with social banking,

• Outsourced control of PSU assets,

• Weakening of internal cadre leadership and promotional avenues,

• A dilution of the public sector mandate in favour of profit optimisation.

If autonomy is the goal, then why is genuine functional autonomy not being strengthened now — for example by de-politicising appointments, improving transparency, strengthening oversight? Because in fact, the move looks more like privatisation by stealth.

The Real Need: More Strong PSBs, Not Fewer Big Banks

India does not require gigantic banks; it requires resilient, accessible, and socially responsible PSBs. Strengthening must come from:

• Better governance mechanisms,

• Investment in technology and human resources,

• Ensuring rural and semi-urban outreach remains robust,

• Accepting that PSBs have unique national and developmental obligations,

• Recognising that while profitability is essential for survival, profit cannot be the single motive.

A key distinction:-

A bank is like a person who needs to breathe to live — but breathing is not the purpose of life.

Similarly, a public sector banking institution needs to earn profit to survive — but its raison d’être is nation‐building, financial inclusion, supporting agriculture, MSMEs, infrastructure, and the unserved. When the primary motive becomes “earn more and more profit”, the social purpose gets lost.

PSBs are not just financial institutions—### they are instruments of nation-building.

Fundamental Questions the Government Must Answer

Has any transparent post-merger performance audit been done publicly which includes cost of merger (≥ ₹15,000 crores), benefits accrued, and who actually benefitted?

Why is the recapitalisation plan being deferred, even as Basel III norms require strengthened capital buffers?

Why is the Government focusing on fewer banks and bigger size, rather than strengthening all individual PSBs?

What guarantees exist that large merged banks will not become ‘too-big-to-fail’?Will taxpayers again be called to rescue?

Why is FDI being increased instead of domestic capital mobilisation or retaining earnings within PSBs?

What safeguards will protect employees(jobs, careers, transfers) and guarantee that the public sector ethos remains intact?

What is the role envisaged for PSBs under the public sector mandate once FDI and private‐type boards dominate?

Why is consolidation the preferred tool if data shows mixed outcomes for cost, efficiency, NPAs and social branch reach? For instance, one study shows: “while mergers have enhanced capital strength and scale, profitability and NPAs continue to present challenges.” ResearchGate+1

Who bears accountability for the huge integration cost and the disruption caused in branch operations, human resources, and local banking access?

India must be cautious. Reforms are necessary — but not at the cost of destroying the functional diversity, regional reach and social commitment of PSBs. Before even considering fresh mergers or higher FDI, the Government owes the nation a transparent, evidence‐based evaluation of all previous consolidation efforts.

Strong PSBs are not necessarily big PSBs.

They are stable, efficient, people‐centric, and socially committed.

As trade‐unionists and as responsible citizens, we firmly assert that the path ahead must be shaped by consultation, evidence, and the larger public interest — not by cosmetic measures aimed at merely enlarging balance sheets.

In summary:

Stop emphasising size for its own sake.

Start emphasising capital strength, healthy business models, risk management, inclusive outreach and clear accountability.

Ensure that PSBs retain their real purpose: serving the nation, not just servicing large-ticket corporate loans or global ambitions.

Resist any move which converts PSBs into repositories for private and foreign capital, thereby diluting their public mission.

Demand a clear, audit-backed, stakeholder-transparent roadmap — before any fresh structural reform is implemented.