GLS 2025 | KV Kamath backs consolidation in India's banking sector for scale and efficiency

Veteran banker and Jio Financial Services Chairman KV Kamath said India’s banking sector is entering a new phase of strength, where consolidation and operational efficiency will determine its long-term competitiveness.

Speaking at the CNBC-TV18 Global Leadership Summit 2025 in Mumbai on Friday, November 7, Kamath stressed that the clean-up of balance sheets in the banking sector and the government’s consolidation push have positioned the system for the next wave of growth.

“Bank balance sheets are clean and that gives me the confidence,” Kamath said, noting that the sector’s health today is far better than it was a decade ago. He said consolidation will help lenders achieve economies of scale, strengthen governance, and boost lending capacity."

Kamath’s comments come a day after Finance Minister Nirmala Sitharaman confirmed that work has begun on the next phase of public sector bank (PSB) consolidation, adding that India needs “a lot of big, world-class banks” to meet the demands of a rapidly expanding economy.

Bank consolidation has long been part of the NDA government’s agenda, but only 10 PSU bank mergers have taken place since 2014, reducing the number of public sector banks from 27 to 12. The Finance Minister’s statement marks the first clear confirmation that the BJP-led NDA is actively exploring the next phase of PSB consolidation, following the last major round in 2020, when 10 banks were merged into four larger entities.

Kamath said a level playing field between public and private sector banks was essential to ensure balanced growth. He added that both have complementary roles - while public-sector banks bring depth and reach, private banks contribute innovation and agility.

Corporate credit and funding shift

Kamath acknowledged that corporate credit demand from banks remains muted, as companies increasingly tap capital markets for funding.

“Corporate demand from banks is not how it should be as capital markets are providing for companies,” he said. However, he dismissed concerns about liquidity, saying, “Funding is not going to be a problem; we need to see what and how you are funding.”

He added that India’s financial system now offers multiple funding avenues - from banks and NBFCs to corporate bonds and equity markets - giving businesses the flexibility to match capital with needs. Kamath said this diversification was a sign of maturity and would help sustain India’s long-term investment cycle.

Technology spending must be prudent

Kamath cautioned banks against indiscriminate technology spending, urging them to invest only in systems that are relevant and adaptive.

“Need to invest in technology that’s appropriate for today,” he said, warning that excessive or misdirected tech expenditure may not yield commensurate returns.

Cautious on hype, confident on fundamentals

Turning briefly to the broader market environment, Kamath said he was comfortable with current valuations, even as some sectors appear overheated. “A bit of the hype around AI companies has to come down,” he said, suggesting that India’s cautious approach to emerging technologies was an advantage.

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