After reviewing the extensive research that has been commissioned into the results of the merger in public banks, the government intends to launch the next phase of public sector bank mergers, a senior finance ministry official told AND.

According to the source who asked to remain anonymous, the aim is to have 4-5 major banks that are as big and powerful as the State Bank of India (SBI), the country’s biggest lender.

There are currently five small public sector banks and seven larger ones.

The government said in 2019 that it would consolidate 10 nationalized banks into four major lenders, reducing the number of public sector banks (PSBs) to 12. In 2017, there were 27 public lenders. As of April 2020, the merger was in effect.

In a report earlier this week, the National Council for Applied Economic Research (NCAER) argued for the privatization of all PSBs other than the SBI.

In all important performance measures over the past decade, PSBs have mostly lagged behind private banks, according to the report by NCAER director Poonam Gupta and economist Arvind Panagariya. He said that “they have seen soured lending and booming operational spending.” These PSOs achieved lower returns on assets and equity than their private sector counterparts.

However, the finance ministry official claimed that state-owned banks had improved all key performance indicators over the past few years and had more than doubled their profits in FY22. In the next parliamentary session of the monsoon, the government should introduce a bill with revisions to allow the privatization of public banks.