Mergers and privatisation: The Finance Minister’s misguided banking agenda

By Thomas Franco 

The Finance Minister has once again revived talk of merging two or three large public sector banks to make them globally competitive. Reports also suggest that the government is considering appointing Managing Directors in public sector banks from the private sector. Both moves would strike at the heart of India’s public banking system. Privatisation undermines the constitutional vision of social and economic justice, and such steps could lead to irreversible damage.

The merger of 28 public sector banks has already resulted in branch closures, staff reductions, and declining customer service. Private banks have capitalised on this by attracting high-value customers with promises of better service. Their growing market share has less to do with efficiency and more with government policies that have weakened public banks. In 2014, public sector banks, including Regional Rural Banks (RRBs), employed 9,25,372 people—74 percent of total bank employees—while private and foreign banks employed only 3,28,583, or 26 percent. PSBs accounted for 84.5 percent of branches, 88.2 percent of deposit accounts, 78.8 percent of deposits, and 75.7 percent of loan outstanding.

Today, the picture has changed drastically. In 2025, PSBs (including RRBs) employ 8,45,315 people, about 45 percent of total banking employment. Private, small finance, foreign, and payment banks together employ 10,55,382, or 55 percent. This shift demonstrates how private banks have expanded while public banks have shrunk—partly because public banks follow a reservation policy in hiring while private banks do not.

Of the total deposits of ₹2,39,06,3261 crore, public banks hold ₹13,34,9808 crore, RRBs ₹7,03,204 crore (₹14,04,8012 crore together), while private banks have ₹8,40,5190 crore, foreign banks ₹11,07,624 crore, small finance banks ₹3,15,390 crore, and payment banks ₹25,046 crore. Thus, public banks now hold only 59 percent of deposits, down from 78.8 percent in 2014. They still serve 69 percent of deposit accounts, compared to 31 percent for private banks, which shows that public banks cater to the poor, while private banks focus on the wealthy. These outcomes are the result of government policy and the subservience of the RBI.

The claim that Indian banks can become globally competitive through mergers is misleading. A country’s banking sector cannot outperform its economy. India’s per capita income, currency value, and export levels are far below those of global banking powers. India’s per capita income in purchasing power parity terms is $10,666—less than one-third of China’s and one-eighth of the United States’. China’s GDP is $18.4 trillion, the US’s is $30.6 trillion, and India’s is just $4.1 trillion, or 21 percent and 13 percent of theirs respectively. India’s share of global exports is 1.8 percent. Given these figures, global competitiveness in banking is unrealistic.

India’s banks have enough work to do within the country. India has just 14 branches per one lakh people, compared to 138 in the US, 224 in Sweden, and 1,501 in South Africa. Household loans per capita in India are $5,415, compared to $104,500 in the US, $356,465 in Singapore, and $257,429 in Switzerland. The bank deposit-to-GDP ratio in India is 72 percent, while it is 403 percent in Hong Kong, 260 percent in Japan, and 101 percent in the US. India needs more banks, more branches, more staff, and more loans to the poor and middle class—not more mergers. Global experience shows mergers often fail, as seen in the cases of Credit Suisse–UBS, Deutsche Postbank–Deutsche Bank, and Wachovia–Wells Fargo. If the Finance Minister is so confident in mergers, let her merge ICICI, HDFC, and Axis—after all, these private banks were also government-promoted at their inception. Public sector banks, however, are not her private property.

The proposal to appoint private sector executives as heads of public sector banks is equally ill-conceived. The Finance Minister should recall the scandals involving Chanda Kochhar at ICICI Bank and Rana Kapoor at Yes Bank, as well as the collapse of IL&FS and Dewan Housing. Yes Bank was saved not by private management but by the intervention of the State Bank of India, which deputed Prashant Kumar as MD. Similarly, Ramesh Kumar, a former SBI Deputy MD, has helped Karur Vysya Bank perform better after his appointment there. Private banks turn to public sector expertise for stability—why then should public banks import private sector managers?

Privatisation of public sector banks would be disastrous. Several private banks—such as Global Trust Bank and Yes Bank—have failed in the past. IndusInd Bank is now facing stress. Once privatised, public banks would lose their vast customer base, and large-scale privatisation would set the country back by decades. On the ninth anniversary of the calamity called demonetisation, the Finance Minister and Prime Minister must be warned: bank privatisation could be an even greater disaster.

Public sector banks such as Indian Bank, United Bank of India, and UCO Bank were once labelled “weak” and denied wage revisions, prompting the creation of the United Forum of Bank Unions (UFBU), which now represents all major bank unions and associations. Today, these banks are performing well. In 2017, when 11 banks were declared weak, the All India Bank Officers’ Confederation prepared turnaround plans for each, and all have improved since.

Now, a government that appears to function for corporates seeks to hand over profitable public banks with enormous assets to its favoured business houses, both Indian and foreign. It is time for the UFBU to form a broader alliance with customers, youth, women, MSMEs, farmers, and trade unions—all of whom will be affected. Together, they can resist privatisation and protect the banking system that serves the majority of Indians.

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Thomas Franco is the former General Secretary of the All India Bank Officers’ Confederation and a Steering Committee Member at the Global Labour University. A version of this article was first published in CFA website