PMO To Weigh PSB Reforms: Mergers, Higher FDI, And Autonomy On The Table

The Prime Minister's Office is set to review proposals to overhaul public sector banks (PSBs) ahead of the 2026–27 Budget. The reform blueprint—crafted by the Department of Financial Services—includes a fresh round of consolidation, enhanced board autonomy, and a phased hike in the foreign direct investment (FDI) cap. Privatisation of select PSBs, first announced in the 2021–22 Budget, may also resurface as part of the government's push to create globally competitive Indian banks, a Financial Express report said.

The report added that the government may also be looking into phased plan to raise the FDI limit to 49% from 20% at present. Further, privatisation, announced in the 2021–22 Budget for two PSBs may also materialise

The report further added that, after a six-year lull, the government is likely to revive its push for PSB reforms with an eye on creating two Indian lenders capable of ranking among the world's top 20. Inter-ministerial consultations are nearing completion, and following the PMO's upcoming review, key political decisions are expected closer to the Budget

“The vision for PSBs aligns with discussions during the finance ministry's recent “Manthan” strategy exercise and builds on the consolidation wave of 2017 and 2019–20, when the number of PSBs was reduced from 27 to 12,” the report said.

Analysts as per FE expect that larger, consolidated banks will benefit from economies of scale, stronger risk management, and greater capacity to meet India's growing credit demand, still modest compared to global benchmarks. The reform agenda has received cautious backing from both the government and the RBI.