OPINION | Vault Matters: India needs its ICBC, ABC, and JP Morgan: SBI alone won’t do

The lowest-hanging fruit in terms of consolidation is obviously the public sector banks.

A few months ago, a veteran banker told me that with every visit to China, the country looks different. There are new highways, new flyovers, and the investment into sprawling infrastructure seems to have no bounds. Without delving into the politics or social demography of China, much of the infrastructure-related applause must go to its banking system.

Take, for instance, ICBC, or the Industrial and Commercial Bank of China. With total assets of nearly USD 6.7 trillion as of April 2025, it comfortably beats the second-largest global bank—ironically enough, another Chinese bank—by a trillion-dollar gap. ABC, or Agricultural Bank of China, is globally the second-largest in terms of assets. Again, ironically enough, the most popular JPMorgan Chase ranks fifth in the global pecking order, trailing China’s top four outfits. The gap between JPMorgan and ICBC was a neat USD 2.7 trillion of assets as of April this year.

India’s ranking in this listing may bring tears to your eyes. State Bank of India, India’s largest bank, which recently crossed Rs 100 lakh crore in assets, was trailing at the 43rd position, with HDFC Bank performing even worse, at 73rd place. It is precisely for this reason that consolidation in the banking sector is extremely critical. India is aiming to become the third-largest economy, but our banks are nowhere near their global peers in scale and size. While the RBI governor may have recently dismissed the idea that banks should ideally aim to grow at least twice the pace of GDP, the underlying fact is that unless banks are equipped to heavy-lift growth in such multiples, achieving those numbers may remain a lofty dream.

The lowest-hanging fruit in terms of consolidation is obviously the public sector banks. They have the same shareholding structure and offer predictability and uniformity in operations and employees. Consolidating private sector banks, although extremely necessary, could be very difficult to implement, given the fragmented and diversified holding structures.

Therefore, purely from a scale perspective, it isn’t a bad idea to reduce the number of public sector banks further. The government recently dismissed news reports on this front, but it needs to rethink what is more important—building banks for tomorrow or playing the five-year-to-five-year electoral theme. Moneycontrol’s recent analysis indicated that in the current calendar year, PSU banks have outperformed private sector banks in terms of stock market returns. We have also, on several occasions, delved into how the asset quality of PSU banks is better than that of private sector banks. Needless to say, growth too has seemed more promising on the government bank side. None of this would have happened had the government shunned consolidation in PSU banks twice, in 2018 and again in 2019. Since 2017, the words ‘recapitalisation of banks’ have become a faint memory. Only old journalists and bankers will remember. Again, that wouldn’t have been possible if we hadn’t had fewer, but more efficient public sector banks.

Now, let’s delve into why size matters, and the best example to explain this is the State Bank of India. It’s not that SBI doesn’t have bad loans at all. The bank’s slippages stood at a little less than Rs 5,000 crore. For HDFC and ICICI, it would still be an easy swallow, although there would have been some noise about it. But for banks such as Bank of Maharashtra, IDBI Bank, or Kotak Mahindra Bank, it would have been harder to absorb. The reason being that the first three banks have the scale to absorb losses. As for the other names, it may dent their financials. In fact, with SBI, HDFC, and ICICI, questioning the bank—particularly on asset quality—has become a tough job in the last two years. Those questions would be flimsy to ask, given the scale these banks have. This is exactly what banks need as they grow: scale gives confidence, the ability to absorb losses, and yet remain attractive from a financial perspective.

The next question to ask is whether one SBI is enough. Logically, definitely not. There is another angle to consider. In 2012, when at least 2-3 banks had the scale and ability to compete with SBI on pricing and loan proposals, there was healthy competition within banks. Of course, corporates aren’t queuing up to take loans from banks right now, and therefore those competitive “fights” are missing. But how will those fights happen if there is only one dominant player—SBI? We run the same monopoly risk that we see with Indigo in the banking sector, though one can feel reassured that the government will never let that happen. Having said that, the assurance that such a thing will not happen should not come from government interference but from healthy competition in the sector, making a strong case for more than one SBI to operate in the country.

If the finance ministry hasn’t thought of another wave of consolidation, it’s high time they start acting on it. The government shouldn’t kill the low-hanging fruit of consolidating PSU banks for the sake of popularity among voters, especially public sector bankers.