Major Bank Reforms Coming! Govt's 2-Day PSB Manthan Meet Begins Today: What To Expect?

The Department of Financial Services (DFS) is set to host a two-day 'Manthan' event with public sector banks (PSBs) on September 12-13. The agenda includes discussions on interest rate cut transmission, credit growth, and deposit mobilisation. There may also be an exchange of ideas regarding the consolidation of PSBs to create global-scale banks.

During the meeting, chaired by DFS Secretary M Nagaraju, participants will explore how to transform PSBs into more robust institutions. Previous mergers among PSBs have been successful, and this meeting might examine potential synergies for further consolidation in the future.

Focus on Credit Growth

India's banking sector is crucial for achieving the nation's goal of becoming a $30 trillion economy by 2047. To support this ambition, bank credit to the private non-financial sector should increase from 56% of GDP to around 130%, according to sources.

As of June 30, 2025, credit outstanding reached Rs 183.4 lakh crore, marking a year-on-year growth of 9.9%. This is a decrease compared to the previous year's growth rate of 18.8% in Q1FY25. The slowdown was mainly due to reduced credit growth in non-banking financial companies (NBFCs).

FDI Regulations in Banking
In India's private banking sector, foreign direct investment (FDI) is permitted up to 74%, with 49% allowed through the automatic route. In contrast, public sector banks have an FDI limit of 20%. Individual foreign entities are generally capped at owning 15% unless an exception is granted by the Reserve Bank of India.

The meeting will likely address reforms needed to boost productivity and enhance digital and data capabilities within PSBs. Building future readiness in terms of resilience and governance will also be key topics during the discussions.

Consolidation Insights

The Indian government announced a significant consolidation of PSBs in 2019, reducing their number from 27 to 12 through mergers. This involved merging ten PSBs into four larger entities while six remained independent. Currently, only two Indian banks-SBI and HDFC-are among the top 100 global banks by total assets.

The decline in overall credit growth was also evident in the services and personal loan segments. These sectors saw their growth rates drop significantly from last year's figures, as reported by CareEdge.

This event aims to foster discussions that could lead to stronger PSBs capable of competing globally while supporting India's economic aspirations.