India's financial services sector - Recent reforms & emerging challenges

India’s financial services sector is characterized by the dominance of public sector banks.

They score on large branch network, brand image and a public confidence that they are too big to fail. They would be bailed out or recapitalized by the government and therefore they are ‘safe’. These assumptions are correct, but they do not detract the fact that the operating environment of banks is getting tougher, there is a trade-off between efficiency and improved financial and operational performance and the one is no longer a corollary of the other.

The government wants stronger and well capitalized institutions, able to underpin an economic trajectory of high growth.

Initiatives towards Consolidation of the Public Sector Banking

i Dena Bank and Vijaya Bank merger with Bank of Baroda

ii Oriental Bank of Commerce and United Bank of India merger with Punjab National Bank

iii Canara Bank and Syndicate Bank merger

iv Andhra Bank and Corporation Bank merger with Union Bank of India

v Indian Bank and Allahabad Bank merger

In addition, there were 2 other initiatives:

i The government’s stake in IDBI Bank has been taken over by LIC of India

ii State Bank of India and its subsidiaries have merged

This in no way is privatization by stealth.