Consolidation of PSBs has improved efficiency but raised concerns of credit concentration and regional under-banking. Analyse.

Q. Consolidation of PSBs has improved efficiency but raised concerns of credit concentration and regional under-banking. Analyse. (15 marks, 250 words)

The 2019–20 mega-mergers reduced Public Sector Banks (PSBs) from 27 to 12, seeking scale and stronger balance sheets. FY26's record ₹1.98 lakh crore net profit signals success, yet consolidation's structural trade-offs merit closer analysis [1].

Efficiency gains - Scale economies: merged entities cut overheads, rationalised branches and pooled technology, aided by the EASE Reforms Agenda and the 4Rs strategy (Recognition, Resolution, Recapitalisation, Reforms) [2]. - Asset-quality turnaround: Gross NPA fell to 1.93% and Net NPA to 0.39% (March 2026), historic lows; all PSBs exited RBI's PCA framework [1]. - Stronger governance: larger boards, better risk systems and CRAR of 16.6%, well above Basel III norms, enabling 15.7% credit growth [1].

Concerns raised - Credit concentration: fewer, bigger banks concentrate exposure; a single anchor bank's stress carries greater systemic risk, straining monetary-policy transmission. - Regional under-banking: absorbing region-focused banks (e.g. Andhra, Corporation, Syndicate) can dilute local reach, thinning coverage in underserved and rural districts vital to financial inclusion. - MSME/priority-sector gaps: standardised large-bank processes may underserve small borrowers despite headline growth in agriculture and MSME advances [1].

Reassembling the picture: consolidation has decisively strengthened PSB balance sheets, but efficiency and inclusiveness need not be traded off. Calibrated branch expansion in under-banked regions, tighter concentration norms, and leveraging JAM-linked digital rails (PMJDY, Mudra) can wed scale to reach — ensuring resurgent PSBs advance the constitutional goal of inclusive growth.

(~250 words)

Sources: 1. PSBs' net profit rises 11% to all-time high ₹1.98 lakh cr in FY26: FinMin (Business Standard) — FY26 profit, NPA ratios, CRAR, credit growth 2. Steps under the 4R's strategy to reduce NPAs of PSBs (PIB, Ministry of Finance) — 4Rs strategy, EASE reforms, recapitalisation and PCA context