The government has clarified that it does not currently have a defined plan to merge public sector banks, even as discussions continue around strengthening India’s financial system.
Policymakers have instead proposed a broader institutional review through a newly announced committee aimed at aligning the banking sector with long term economic objectives.
The initiative reflects a shift towards evaluating structural reforms, financial stability and inclusion rather than pursuing immediate consolidation measures.
Nirmala Sitharaman stated that there is no existing roadmap for additional mergers among public sector banks.
Speaking after a meeting with the central board of the Reserve Bank of India, she indicated that consolidation was neither discussed as part of recent policy deliberations nor included in current budget planning.
The clarification comes amid periodic speculation regarding further restructuring within the state-owned banking space following earlier consolidation exercises.
The Union Budget for 2026–27 proposed the creation of a High Level Committee on Banking for Viksit Bharat to undertake a comprehensive assessment of India’s banking ecosystem.
The panel is expected to examine ways to align the sector with the country’s long-term growth trajectory while maintaining financial stability.
Key areas likely to be reviewed include banking efficiency, financial inclusion, consumer protection frameworks and the sector’s ability to support expanding credit requirements.
According to the finance minister, the committee’s mandate will extend beyond consolidation and cover broader institutional strengthening. The objective is to evaluate how Indian banks can evolve to meet financing needs associated with economic expansion while maintaining resilience within the financial system.
The exercise aims to develop policy recommendations once the committee’s terms of reference are finalised.
RBI Governor Sanjay Malhotra noted that banks remain adequately capitalised and are positioned to sustain credit expansion over the next several years. He also indicated that deposit growth has begun to keep pace with credit demand, suggesting improved balance between lending activity and funding sources.
This outlook supports expectations that banks will continue to play a central role in financing economic activity.
The Budget also outlined measures aimed at improving efficiency among public sector non-banking financial institutions. Plans include restructuring entities such as Power Finance Corporation and REC Limited, both of which are key lenders to India’s power infrastructure sector.
These steps are intended to enhance operational scale and improve financing capacity for energy related projects.
Commenting on foreign investment flows, the RBI governor said gross foreign direct investment continues to rise even though net FDI has moderated. The change has been attributed partly to repatriation of earlier investments and increased overseas investments by Indian entities.
Read More: FM Says Gold Demand Remains Within Traditional Trends as RBI Flags Stable External Sector.
The government’s current approach indicates a focus on reviewing and strengthening the banking sector rather than pursuing immediate mergers among public sector banks.
Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation or investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.
Investments in the securities market are subject to market risks. Read all related documents carefully before investing.
Published on: Feb 24, 2026, 10:22 AM IST
Neha Dubey
Neha Dubey is a Content Analyst with 3 years of experience in financial journalism, having written for a leading newswire agency and multiple newspapers. At Angel One, she creates daily content on finance and the economy. Neha holds a degree in Economics and a Master’s in Journalism.
Know MoreWe're Live on WhatsApp! Join our channel for market insights & updates
Get the link to download the App
EN