The mega-mergers of Public Sector Banks (PSBs) implemented primarily in 2017 and 2020 have, by 2025, largely moved past the initial phase of disruption and are demonstrating significant, positive structural improvements in efficiency and risk management.

While the goal of achieving "global competitiveness" is still a long-term aspiration, the consolidation strategy has been highly successful in creating larger, financially stronger, and more resilient domestic entities.

The evidence points away from the initial fear of creating "less agile entities" and confirms that the structural benefits of scale and rationalization are starting to materialize.

Here is an assessment of the impact across key areas:

1. Operational Efficiency and Synergy Gains

Assessment: Significant Improvement

The mergers were aimed at realizing economies of scale by eliminating functional redundancies, and by 2025, this goal is being achieved.

• Cost-to-Income Ratio (CIR): This is a key measure of operational efficiency. Post-merger analysis shows a statistically significant decrease in the average Cost-to-Income Ratio (CIR) for the merged entities (e.g., from an aggregate average of around 52-53% pre-merger to around 46-47% by FY 2023-24). This decline is the direct result of realized cost synergies.

• Branch and ATM Rationalization: The elimination of overlapping bank branches and ATMs in the same geographic areas has reduced infrastructure maintenance costs.

• Employee Productivity: Metrics like Net Profit per Employee and Business per Employee have shown sharp increases (e.g., Net Profit per Employee improved by approximately 39% for merged banks). This reflects better utilization of the workforce and the implementation of more efficient processes across the merged entities.

• IT Integration: While challenging initially, the merger forced the migration onto a single, harmonized Core Banking System (CBS). This has enabled the merged banks to invest in advanced technologies (AI, data analytics) and offer integrated, superior digital banking products, enhancing efficiency in the long run.

2. Risk Management and Asset Quality

Assessment: Substantial Improvement in Resilience

The consolidation has significantly enhanced the merged banks' capacity to manage risk and absorb shocks.

• Capital Adequacy: The mergers, often combining weaker banks with stronger "anchor banks," immediately bolstered the capital buffers. The average Capital Adequacy Ratio (CAR) for merged PSBs has significantly improved, moving from a pre-merger average of around 12.6% to over 15.47% post-merger. This provides a stronger buffer against unexpected loan losses and allows for higher lending capacity.

• Asset Quality: While the mergers did not by themselves solve the legacy NPA issue, they provided the financial strength and governance structure to tackle it more effectively. The Gross NPA Ratio (GNPA) for the merged entities has seen a clear reduction post-merger, moving from peaks of around 13-16% during the crisis years to much lower levels by 2025, supported by the IBC framework.

• Diversification: Larger entities inherently possess greater diversification of risk across regions, sectors, and asset classes, making them more resilient to isolated regional or sectoral economic shocks.

3. Global Competitiveness

Assessment: Increased Scale, but Still Limited Global Reach

The mergers achieved the primary goal of creating domestic giants, but global competitiveness remains a long-term target.

• Increased Scale: The number of PSBs was reduced from 27 in 2017 to 12 in 2020, resulting in much larger banks like State Bank of India (SBI), Punjab National Bank (PNB), and Bank of Baroda. This increased scale allows them to finance large, complex infrastructure and industrial projects vital for India's growth—a key strategic goal.

• International Ranking: While larger, even the combined assets of the 12 PSBs place them only marginally among the world's top banks. The ultimate goal of having a handful of Indian banks among the Global Top 50 is yet to be realized, requiring continued sustained growth and potential future consolidation.

• Agility vs. Scale: The trade-off between scale and agility is valid. The bureaucratic inertia inherent in public sector operations still requires addressing, particularly in decision-making speed compared to agile private sector counterparts.

                  ++++++++++++++++

The mega-mergers have been a net positive structural reform. They did not merely create larger, less agile entities; rather, they:

1. Successfully improved operational efficiency (lower CIR, higher employee productivity) by enforcing rationalization and modernization.

2. Dramatically strengthened risk management and capital resilience, making the banking system safer.

The initial short-term friction (cultural integration, IT system migration, temporary customer service issues) has largely been overcome, and the benefits of size and operational synergy are now the dominant trend in the financial performance of the anchor banks.