‘It may not be a bad idea’: SBI's CS Setty backs another wave of PSU bank mergers

By Admin

17 Nov, 2025

India’s banking landscape may be set for another round of consolidation as State Bank of India (SBI) Chairman Challa Sreenivasulu Setty voiced his support for further mergers among public sector banks (PSBs). In a recent interview with Bloomberg News in Mumbai, Setty said that “some further rationalisation may make sense” as the country looks to build financial muscle to meet the demands of a rapidly expanding economy. According to him, “If another round happens, it may not be a bad idea.”

Over the past decade, India’s banking system has undergone significant transformation through consolidation, bringing the number of state-owned lenders down to 12. Yet, Setty believes there are still smaller, sub-scale banks whose merger could strengthen the sector. With SBI already controlling nearly one quarter of India’s ₹194-lakh crore loan market, larger and stronger public sector lenders could play a critical role in financing India’s growth ambitions.

SBI remains the colossus among domestic banks, with a balance sheet of $787 billion, more than 22,500 branches and over 500 million customers. Despite this scale, the bank continues to focus on expansion, not mere preservation of market share. Setty says the lender is determined to grow further, especially as the government prepares the financial ecosystem to support India’s transformation into a developed economy by 2047.

To meet this vision, India requires a massive credit expansion. Bank financing must rise to 130 percent of GDP from the current 56 percent, supporting what is projected to be a ten-fold jump in national GDP to about $30 trillion by 2047. Yet, only SBI and HDFC Bank currently feature in the global top 100 by total assets while countries like China and the United States have several entries among the world’s largest banks. This gap reinforces the government’s push to build bigger, globally competitive Indian lenders.

Setty acknowledged that exports have been affected by the steep US tariffs imposed under President Donald Trump. Still, he affirmed that SBI has not witnessed any major stress in specific sectors. The bank continues to support exporters, offering adjustments and facility extensions wherever needed. India, meanwhile, is undertaking broader economic reforms, such as tax reductions, in a bid to attract foreign investment and leverage the global shift in supply chains.

Competition within the domestic banking sector is intensifying, particularly for lending to large corporates. Setty highlighted that many banks are seeking to expand their corporate portfolios, but the number of sizeable corporates remains limited, leading to tighter loan pricing. Even so, SBI recently revised its credit growth forecast to 12–14 percent for the current financial year, up from an earlier projection of 11–12 percent.

Setty’s journey to the helm of India’s largest bank is equally noteworthy. From collecting grocery-store debts in his village of Potlapadu at the age of 12 to overseeing the recovery of nearly $20 billion in bad loans after the COVID-19 lockdown, his career reflects nearly four decades of dedication at SBI.

India’s banking sector is drawing significant global attention as billions of dollars flow into insurance, fintech, and banking investments. SBI’s own shares have gained 19 percent over the past year, slightly outperforming the 16 percent rise in the Nifty Bank index.

The financial ecosystem is being reshaped further with new draft guidelines allowing banks to directly fund corporate takeovers. Setty believes these norms will boost the country’s $40 billion-plus M&A market while ensuring banks do not face excessive exposure. He expects pricing to soften as more domestic lenders with access to cheaper funds enter merger and acquisition financing. However, he emphasised that M&A funding should not be treated like regular balance-sheet lending, as each transaction carries unique risks.

With India emerging as a major wealth management hub, SBI is also expanding aggressively in this space. The bank has hired 1,000 wealth relationship managers in the past year and created 2,000 new internal roles to serve its rapidly growing affluent customer base. More than 110 micro-markets mostly in metros and large cities have been identified for wealth hubs, with plans to add another 50 to 100 hubs over the next two years.

As discussions around PSU bank mergers gain momentum, Setty’s endorsement adds weight to the possibility of another restructuring wave. With India aiming for unprecedented economic expansion, stronger and more scalable public sector banks may well be the foundation on which the next phase of financial growth is built.