The Ministry of Finance has set a long-term target of having at least two globally competitive Indian banks by 2047, and has therefore asked the public sector banks to focus more on improving fundamentals, including boosting low-cost deposits and expanding credit to priority sectors.
According to senior finance ministry officials, these issues and goals were discussed during the ongoing Manthan review of the state-run banks. During the review meeting, the Finance Ministry flagged the need for the public sector banks to strengthen current account and savings account (CASA) deposit ratio as it has slipped across banks in recent quarters, thereby creating a pressure on net interest margins.
“PSU banks need to seriously work on improving CASA ratio,” an official said.
Most large PSU banks have seen their CASA ratio falling below 40%. SBI’s CASA in the June quarter fell to 39.36% from 40.70% last year, Bank of Baroda’s stood at 39.33% in June 2025, down from 40.31% a year ago, while PNB’s CASA ratio declined to 37% from around 40% a year ago.
However, there were no discussions on the merger of public sector banks at the Manthan review.
The meeting was chaired by Department of Financial Services Secretary M. Nagaraju along with other senior ministry officials and top executives of public sector banks including State Bank of India Chairman Challa Sreenivasulu Setty and Punjab National Bank Chief Executive Officer Ashok Chandra.
The government has also asked the banks to ensure more credit flows to agriculture and micro, small and medium enterprises (MSMEs). There were discussions on improving governance frameworks for the banks. A rejig of PSU bank boards is under consideration to enhance autonomy and strengthen decision-making.
While the meeting reviewed past consolidation efforts that have created stronger entities, no discussion was held on fresh rounds of mergers among state-run banks. Instead, the focus was on encouraging lenders to diversify operations and build resilience against global uncertainties.
The last round of merger happened in 2020, when India witnessed a significant banking consolidation where ten public sector banks (PSBs) were merged into four larger entities, creating stronger, more globally competitive banks. There were discussions around autonomy to be given to the board of banks in order to achieve efficiency and improve governance.