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Informist, Tuesday, Feb. 3, 2026

--S&P: Econ climate presents opportunity for India PSU bks structural reforms 

--S&P: Reforms can help Indian PSU banks achieve scale, attract capital 

--S&P: India PSU bks won't become world leading if reforms miss on efficiency 

NEW DELHI – For Indian public sector banks to achieve global competitiveness, the government will have to bring reforms that lead to sustained improvements in cost efficiency and strengthened governance, according to S&P Global Ratings. 

Finance Minister Nirmala Sitharaman in her Budget speech Sunday announced the government will set up a committee to comprehensively review India's banking sector and align it with the country's growth goals. The reforms could emphasise consolidation to achieve scale, coupled with structural efficiency gains, S&P said in a report Tuesday. "If reforms miss on efficiency, we believe they won't likely meet state objectives of becoming world leading," S&P said.  

The current economic climate presents an opportunity for structural reforms in India's public sector banks, S&P said. The balance sheets of Indian banks are healthy and asset-quality pressures are manageable, the rating agency said. "India's public sector banks are inefficient not just in comparison to private sector banks but also compared with other regional banks in South and Southeast Asia."

Government-owned banks have oversized and underutilized branch network due to mandates to promote financial inclusion in underserved areas, S&P said. Public sector banks find it politically difficult to "retrench workers, hindering efficiency gains" and have high employee costs. 

Widespread reforms could help banks achieve scale, and attract talent and capital, S&P said. "In our view, meaningful gains in cost efficiency are unlikely to arise from scale alone. Banks may supplement these efforts by prioritizing digital innovation and customer-centric strategies to achieve reach and improved cost efficiency," the rating agency said.  End

Reported by Shubham Rana

Edited by Akul Nishant Akhoury

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