According to a recent research report by Motilal Oswal Mutual Fund, banking stocks continued to show strength, with the Bank Index rising 5.75 per cent in October, and posting 3.24 per cent, 4.88 per cent, and 12.24 per cent growth across the 3-month, 6-month, and one-year periods, respectively. The trend indicates that the banking sector is in a visibly stronger phase. Credit and deposits are growing, regulators are loosening liquidity constraints, the Government and central bank are talking about consolidation, and top banks (led by the State Bank of India) are aiming for global scale.
However, there are immediate concerns. According to some experts, the pressure on net interest margins will continue in the next quarter due to “intense competition for deposits, and potential interest rate cuts.” In terms of regulation, there are hints of higher scrutiny in areas such as cybersecurity, AI governance, and consumer protection. But compared to the private counterparts, the public sector banks seem poised to counter margin contractions. Large state-owned banks have posted good results in the second quarter this year, and are positive about the future.
Over the medium term, the potential and actual policy and regulation shifts, which include talks about privatisation and dilution, mergers among the larger banks, liquidity reforms, and faster retail growth are collectively reshaping how capital flows inside the economy. Finance Minister Nirmala Sitharaman publicly signalled how privatisation of state-run banks can enhance financial inclusion, and why the past nationalisation did not deliver the expected outcomes. She framed the former as compatible with investors and public interest. This sparked protests among the unions, and Civil Society due to worries about job losses and rural access. Yet again, as in the 1990s, privatisation is a live policy debate, rather than an area of settled merit.
Why this matters is that privatisation changes “governance incentives, capital access, and risk allocation in large banks potentially speeding efficiency but raised distributional questions.” According to media reports, the government and the Reserve Bank of India wish to consolidate the large state-owned banks, after merging the smaller and weaker ones with the bigger and stronger ones earlier, to create larger, globally competitive institutions. The next phase may use M&As to build scale, reach and bigger balance sheets.
Larger banks, at least theoretically and according to a media report, improve funding depth, diversify loan books, and increase the ability to underwrite big projects, critical for infrastructure and industrial growth. Macro data and industry reports show that deposits and credit grew in 2025 (double-digit deposit growth and credit growth depending on the series). The RBI’s regulatory nudges will free up capital to support further lending. Many analysts see this as a concrete tailwind for margins and loan growth.
Several signals support such claims. These include the improving asset quality trends in big banks, rising retail and SME lending, digital adoption lifting low-cost deposit acquisition, and rising market valuations for major private and public banks. Industry and credit agencies have upgraded near-term credit expectations on the back of these dynamics. Stronger banks can underwrite growth, widen financial inclusion (if managed efficiently and properly), and support capital markets through issues, and bond issuances.
The State Bank of India (SBI) has set a target of being among the world’s top-10 most-valued banks by 2030. It crossed the Rs100 lakh-crore business milestone; management pointed to stronger capital buffers, and international expansion as levers to reach the targeted scale. This is part-prestige and part-strategy. It signals that India’s largest bank, which claims to be among the top 10 in terms of market capitalisation, wishes to aim for global competitiveness.
If SBI (and a couple of large private banks) enter the top 10 globally, it will change perceptions about India’s financial system, attract global investors, and make large-ticket domestic financing easier. SEBI chief Tuhin Kanta Pandey emphasised that capital market reforms, deeper domestic savings deployment, and simplified capital raising are central to financial ambitions. Hence, the regulators and market architects are pushing for reforms to make markets faster, more inclusive, and more efficient. While Pandey’s remarks stop short of a prediction that “without reforms we cannot reach $30 trillion GDP,” his message is that structural reforms and deeper capital markets are prerequisites to sustain large-scale targets.
Policymakers and ministers have outlined the long-term vision of a $30-trillion economy by mid-century. Officials and analysts warn that meeting such targets requires complementary reforms across finance, infrastructure, taxation, and labour. According to some, “India’s pathway to any very large nominal GDP target will be easier with deeper capital markets, larger banks, and operating reforms.”
India’s banking sector is on an upward trajectory backed by tangible policy moves, and stronger macro metrics. But the shift from “good” to “transformational” depends on policy follow-through. Careful privatisation or consolidation need to preserve inclusion, continuing liquidity/capital reforms, and parallel capital-market deepening. SEBI and bank leadership are explicit that without them the scale-up will be harder. Policy action over the next 18–60 months will matter. The Government, according to media reports, has prepared immediate blueprints, and several decisions may be unleashed over the next few months, including in next year’s Union Budget. The banks, investors, and customers are excited. So are the foreign investors, who have already queued up for action, which includes buying stakes in lucrative M&A deals on the table.
