Financial Performance Effects of the 2020 Public Sector Bank Mergers in India: Evidence from a Narrative Review of Consolidation Outcomes

Abstract

The Indian banking sector has undergone a significant transformation since the post-liberalisation reforms, with consolidation emerging as a key strategy to address structural inefficiencies in public sector banks (PSBs). This study presents a narrative review of public sector bank consolidation in India, with a particular focus on the financial performance impact of the 2020 mega-merger. The review synthesises existing academic literature, policy documents, and institutional reports to evaluate changes in key financial indicators, including profitability, asset quality, capital adequacy, liquidity, operational efficiency, and market response. The findings indicate that while consolidation strengthened the structural position of banks by improving scale, balance-sheet capacity, and solvency, the impact on profitability was uneven and often delayed due to integration challenges and provisioning pressures. Asset quality emerged as a critical determinant of post-merger performance, with banks inheriting higher stressed assets experiencing slower recovery. The review further highlights that financial outcomes varied significantly across merged entities, influenced by pre-merger conditions and the effectiveness of post-merger integration. Overall, the 2020 mergers contributed to enhanced financial stability but did not uniformly translate into improved earnings performance. The study underscores the importance of governance, integration capability, and sustained policy support in determining the long-term success of banking consolidation.