Archive · 26 Aug 2026
EAC-PM Urges Fewer Equal-Sized Banks Without Sacrificing Competition
India’s Economic Advisory Council studied how well the country’s banks are working.
It suggested combining some banks so that a few large banks of similar size are created.
The council said bigger banks could have more money and a wider reach to support large projects.
It also said banks must continue competing with one another.
Earlier mergers reduced the number of public-sector banks from 27 to 12.
The study examined 47 banks from FY15 to FY26.
It found that banks became more technically efficient after falling to a low point in FY20.
The paper warned that mergers work best when computer systems, risk practices and work methods are combined successfully.
It said digitization and artificial intelligence could make banking more efficient in the future.
The EAC-PM recommended consolidating India’s banks into a few large, similarly sized lenders while preserving competition.
The paper said consolidation could provide stronger capital, wider geographic reach and greater capacity to finance large projects.
Public-sector bank mergers reduced the number of PSBs from 27 to 12 between 2017 and 2020.
A study of 47 banks found mean technical efficiency rose from 77.99% in FY20 to 88.34% in FY26.
The paper said technology integration, artificial intelligence and productivity improvements would be important for future efficiency gains.
- Who
- The Economic Advisory Council to the Prime Minister, which studied 47 Indian banks.
- What
- It recommended consolidating banks into a few large, similarly sized lenders without reducing competition.
- When
- The working paper covered FY15 to FY26; the banking data cited includes figures through June, July and March 2026.
- Where
- India.
- Why
- The council said consolidation could strengthen capital, expand geographic reach and increase banks’ capacity to finance large projects and the economy’s growing credit needs.
Arguments for Consolidation
Competition and Integration Concerns
Bank size and lending capacity
Arguments for Consolidation
The EAC-PM said a few large, similarly sized banks could have stronger capital bases, wider geographic reach and greater capacity to finance large projects.
Competition and Integration Concerns
The council said consolidation should not compromise competition, as Indian banks currently have widely varying market shares and customers need continued market choice.
Results of previous mergers
Arguments for Consolidation
The paper said earlier consolidation brought greater scale and potential operational synergies, while its study found improved mean technical efficiency from FY20 to FY26.
Competition and Integration Concerns
The paper said the full benefits depended on successful technology integration, harmonized risk cultures and sustained productivity improvements.
Acquiring weaker banks
Arguments for Consolidation
Bank takeovers and mergers were part of efforts to address legacy stress and strengthen the banking system.
Competition and Integration Concerns
The paper said the takeover of weaker banks affected the efficiency and productivity of the acquiring banks.
- Working paper
- Reforms, Efficiency, and Productivity of Indian Banking Sector in the Last Decade: A DEA Approach
- Banks studied
- 47 banks representing more than 95% of the banking system’s assets
- Study period
- FY15 to FY26
- Banking system in March 2026
- 124 scheduled commercial banks
- Mean technical efficiency
- 88.34% in FY26, compared with 77.99% in FY20
- FY26 efficiency by group
- 93.12% for public-sector banks and 86.02% for private banks
- Public-sector bank consolidation
- The number of PSBs fell from 27 to 12 after mergers
