Banking Consolidation: What Europe Can Learn from India’s Strategy

Banking consolidation is back on the agenda in the European Union. Facing a fragmented financial sector, regulatory inconsistencies, and limited global competitiveness, EU policymakers are revisiting how to build a more robust and resilient banking ecosystem. Interestingly, India has already walked this path, with considerable success, offering valuable lessons for Europe.

India’s Bank Consolidation: A Strategic Move Led by the Government and the RBI

Before 2017, India’s banking sector was overloaded with 27 public sector banks (PSBs), many operating with overlapping footprints, weak governance, and a rising burden of non-performing assets (NPAs). Credit delivery was inefficient, and political interference was common.

Recognizing the structural weaknesses, the Government of India, in close coordination with the Reserve Bank of India (RBI), launched a major consolidation initiative. The RBI played a pivotal role in:

• Framing a consistent regulatory framework across all PSBs, ensuring smooth merger execution.

• Supervising governance reforms and strengthening capital adequacy norms.

• Pushing for timely resolution of stressed assets through the Insolvency and Bankruptcy Code (IBC) and NPA monitoring.

Between 2017 and 2020, the number of PSBs shrank from 27 to 12, creating stronger, tech-savvy, and more competitive institutions like State Bank of India (SBI), Bank of Baroda (BoB), and Punjab National Bank (PNB).

Europe’s Banking Challenges: A Mirror Image of India’s Past

Today, the EU faces similar challenges that India tackled a few years ago:

• Overbanking and fragmentation: Thousands of small and mid-sized banks, particularly in Germany and Italy.

• Regulatory inconsistency: Despite ECB oversight, divergent national insolvency and tax laws impede cross-border mergers.

• Weak global presence: The EU lacks a banking behemoth on par with American or Chinese giants.

• Low profitability: Many smaller banks struggle due to duplicated costs and limited digital investments.

Key Lessons for Europe from India’s Bank Merger Strategy

1. Promote Regional and Strategic Mergers

India merged banks with complementary operational and regional strengths (e.g., BoB + Vijaya + Dena). The EU can mirror this by encouraging mergers within logical blocs such as Benelux, Iberia, Nordics, based on synergy potential.

2. Harmonise Regulation and Insolvency Frameworks

India benefited from a single regulatory regime under the RBI. The EU must complete its Banking Union, including a unified deposit insurance scheme and pan-European insolvency laws, to unlock meaningful M&A potential.

3. Tie Mergers to Capital and NPL Cleanup

India used consolidation to inject capital and clean up toxic balance sheets. The EU could replicate this via state-backed recapitalization, EU-wide NPL platforms, or ESM-supported restructuring, especially in weaker markets like Italy and Greece.

4. Use Scale to Drive Digital Transformation

Post-merger, Indian banks were better positioned to invest in core banking tech and digital services. Consolidated EU banks could similarly boost tech adoption, fintech partnerships, and customer-centric digital experiences.

5. Position M&A as Growth, Not Bailout

India framed its mergers as a strategic growth agenda, not a rescue. The EU should follow suit, aiming to create “European banking champions” similar to Airbus in aerospace or STMicroelectronics in semiconductors.

Final Thoughts: Consolidation Is a Means to Global Competitiveness

India’s banking consolidation wasn’t without challenges, but it created stronger institutions, improved governance, and accelerated digital transformation. Most importantly, it showed that consolidation, done right, drives resilience and global relevance.

For the EU, banking M&A is not just about fixing current inefficiencies. It’s about future-proofing the financial system. But the success of such a strategy depends on harmonised regulation, cross-border cooperation, and a long-term vision.

Disclaimer: The views expressed in this article are for informational purposes only and do not constitute financial, legal, or investment advice. While the analysis draws from public information and comparative case studies, readers should conduct their own research or consult with professional advisers before making any decisions related to banking, investment, or regulatory matters. The content reflects personal interpretations and does not represent the views of any institution or organisation.