SBI backs another wave of bank mergers

State Bank of India is supportive of another wave of mergers among state-backed lenders as policymakers explore ways to build scale and finance growth in the world’s fastest-growing major economy.

“Some further rationalisation might make sense. There are still some smaller, sub-scale banks,” Challa Sreenivasulu Setty, Chairman of the country’s biggest bank, said in an interview with Bloomberg News in Mumbai. “If another round happens, it may not be a bad idea,” he said.

Mumbai-based SBI controls about one quarter of India’s Rs 194 trillion ($2.18 trillion) loan market. A wave of local mergers over the past decade has left 12 state lenders competing with private and foreign players such as HDFC Bank Ltd. and HSBC Holdings Plc. With a balance sheet of $787 billion, SBI dominates the industry, along with its more than 22,500 branches and over 500 million customers.

India is discussing options to create large state lenders, which aligns with the government’s need to fund massive infrastructure and industrial projects in Asia’s third-largest economy. Prime Minister Narendra Modi has set a target to transform India into a developed economy by 2047. That vision requires bank financing to increase to about 130% of gross domestic product from 56% currently, supporting an expected ten-fold increase in GDP to roughly $30 trillion.

Currently, only SBI and HDFC Bank rank in the top 100 global sector list by total assets. China and the US have rivals among the 10 biggest, according to data compiled by Bloomberg.

While China and India have been saddled with some of the steepest US tariffs under President Donald Trump, New Delhi is undertaking reforms including tax cuts to lure foreign investments and take advantage of a rejig in global supply chains.

Setty, who took the top job at the bank in late 2024, said that though exports had been impacted by additional US tariffs, SBI is yet to see major issues in any sector. “We are not pruning any exposure, we continue to support exporters. If any temporary adjustments or facility extensions are needed, we’re addressing those,” he said.

SBI, which is 55%-owned by the government, is seeing signs of an industry-wide revival of capital spending by corporates but pricing for loans is becoming tighter. “There are many banks looking to build corporate portfolios, but only a limited number of large corporates — so that segment will remain highly competitive,” said Setty. Last month, the lender raised its forecast for credit growth to 12% to 14% for its current year from a previous guidance of 11% to 12%.

One of Setty’s key tasks after the coronavirus lockdown was to head recovery of SBI’s nearly $20 billion bad-loan pile.

According to Setty, SBI is keen to expand its market share further. “Even as a dominant player, our approach isn’t about defending market share but acquiring more,” he said, adding that he doesn’t see competition from foreign capital as a threat. The firm has total assets of nearly 69 trillion, with HDFC Bank taking the second spot at Rs 40 trillion.

A wave of billion-dollar deals in India’s banking sector has put the financial sector in the global spotlight as investors seek opportunities in the country. This builds on the momentum of foreign players investing in insurance and fintech firms. SBI’s shares have gained 19% over the past one year versus a 16% increase in the Nifty Bank index.

At the same time, authorities have proposed a framework enabling lenders to directly fund corporate takeovers, a move expected to boost the country’s $40 billion-plus deals market. The draft guidelines ensure that no bank will have excessive exposure to M&A lending, according to Setty.

“As for pricing, I expect some softening since more players, especially Indian lenders with access to lower-cost funds, will enter this space, he said. “However, M&A financing shouldn’t be treated like simple balance sheet funding. Each deal carries distinct risks, and pricing should reflect that, Setty said.

As the country becomes a global hotspot for wealth management, banks are ramping up offerings and hiring aggressively to meet booming demand on the back of robust equity markets and real estate transactions. The firm hired 1,000 wealth relationship managers over the last 12 months, said Setty, adding that 2,000 roles were created internally to cater to its wealth customers.

Setty said the financier has identified more than 110 micro-markets, mostly located in India’s metro and large urban centres, where it has opened so-called wealth hubs for clients. It plans to add another 50 to 100 hubs over the next two years.