Critically examine the proposed privatisation of public sector banks against the post-merger consolidation gains in India’s banking sector.

Introduction:

The Union Budget 2021-22 announced the privatisation of two public-sector banks and one general-insurance company. Post the 2019 PSB consolidation — 27 PSBs merged into 12 — the gross-NPA ratio of PSBs fell to 3.0% (RBI Financial Stability Report December 2025) and ROA recovered to 1.1%, reopening the privatisation versus consolidation debate.

Consolidation gains: The 2019 mega-merger created four mega banks (PNB, Bank of Baroda, Canara, Union); aggregate balance sheet scale rose to ₹172 lakh crore (March 2025, RBI). Credit-deposit ratios improved, GNPA fell from 14.6% (March 2018) to 3.0%, profitability turned positive after seven years of losses. The 4R framework — Recognition (asset quality review 2015), Recapitalisation (₹3.1 lakh crore), Resolution (IBC 2016), Reforms (EASE) — restored stability.

Privatisation arguments: P.J. Nayak Committee (2014) and RBI Working Group (2021) argued that PSBs face dual-control under the Bank Nationalisation Act 1970, Department of Financial Services oversight, and CVC-CBI exposure for legitimate commercial decisions. Privatisation would raise capital efficiency, deepen capital markets, and lower fiscal recapitalisation calls.

Counter-arguments: All India Bank Officers' Confederation and the RBI Bulletin 'PSBs are not less efficient' study (August 2022) note that PSBs anchor financial inclusion (54 crore Jan Dhan accounts, 56% women), priority-sector lending and DBT delivery for ₹38 lakh crore. The IDBI Bank stake-sale (still pending, March 2026) shows execution challenges in valuation and fit-and-proper bidders.

Way forward:

The Ministry of Finance should sequence privatisation of two mid-sized PSBs by FY28 after notifying the Banking Investment Company holding model, while reserving PSB anchor-role for financial inclusion under PMJDY and DAY-NRLM.