“We are discussing with the RBI. We are discussing with banks,” she said, underscoring that work has begun but foundational changes lie ahead.

Why Do Big Banks Matter?
Sitharaman said this means that with the growing economy, the requirements of the banking system are increasing — more infrastructure finance, larger credit flows, deeper retail outreach, and global competitiveness. She pointed to recent tax reforms, including the GST rate cuts, as a catalyst that will spur investment and deepen credit demand. At the same time, she observed that the banking ecosystem must evolve to support that surge.

The minister pointed out that India has already undertaken major consolidation of PSBs — from 27 in 2017 to 12 today — through a series of mergers.

Key Areas of Focus:

Scale through consolidation or new models:
Sitharaman said big banks may either be created by consolidation among the existing PSBs or by creating fresh large institutions. “You need an ecosystem in which more banks can operate and grow,” she said.

Stronger flow of credits, simpler operations:
She urged the banks to deepen and widen credit to industry and, noting that process simplification was required, said, “You can’t be putting the onus on the borrower to go on proving and providing documents till death comes.”

The better human-tech interface:
Referring to branch operations, the minister emphatically mentioned that technology might be the driver, but the human element is a crucial factor: branch staff who understand the local language and context strengthen customer connection.

Business Standard:

Privatisation & stake sales:
Sitharaman also referred to the ongoing process of privatising IDBI Bank — wherein the government, along with LIC, had invited expressions of interest for the sale of a combined stake of around 60% — as part of the larger banking reform agenda.

The Pioneer:

Larger entities:
If consolidation gains traction, then India’s largest banks may become global-scale players, better able to finance big infrastructure, digital banking, cross-border flows and global operations.

Better competition:
Private banks and newcomers may find a more consolidated public-sector side facing them, increasing competition and operational efficiency.

Improved system resilience:
Larger banks with solid capital bases, diversified portfolios and more sophisticated risk systems would tend to further improve financial stability.

Credit growth boost:
Banks are focusing on scale and simplification, so corporate and retail credit flows are likely to increase, carrying forward the government’s objective of bringing about a virtuous investment–consumption cycle.

Challenges & Watch-Points:

Execution complexity:
Large bank mergers or new build-outs must align culture, systems, governance and regulatory compliance — a complex process that takes many years to implement.

Regulatory clarity:
While discussions are underway, the framework for how consolidation will happen — who merges with whom, what happens to governance, and the shareholding structure — remains to be clearly defined.

Stakeholder buy-in:
Bank boards, managements, employees and other stakeholders must be aligned with the Transformation Agenda. Resistance or uncertainty may impede progress in the zeal of implementation.

Competitive threat:
Private sector banks, fintechs and NBFCs are moving fast; delays in public-sector reform may further widen this gap.

Public-interest concerns:
As banks scale and possibly privatise, they must balance commercial viability with a public-service commitment — including issues of financial inclusion and rural reach.

Next Steps & Roadmap:
The government and the RBI are “discussing how to build larger banks”, as Sitharaman said, and structuring the ecosystem accordingly.

In the near term, expect:

• A blueprint for next-phase PSB consolidation or strategic partnership.
• Policy work on enhancing bank governance, capital buffers and technology infrastructure.
• Credit-flow reforms aimed at expanding outreach to industry, MSMEs and infrastructure sectors.
• Measures to strengthen branch operations, local language interface, simplification of processes, and integration of digital and human elements.

Conclusion:
With its banking reform agenda entering a new phase, India is striving not just for bigger banks, but world-class banks that can support the country’s growth ambitions. Finance Minister Sitharaman reinforced this point: scale has to be accompanied by efficiency, governance, reach and innovation. As consultations with the RBI and banks move forward, the real challenge lies in implementation — where policy intent must translate into large, resilient banking institutions capable of serving the needs of India’s growing economy and increasing global ambitions.