India's public banks must cut branches to hit 'world-leading' goal: S&P

Indian PSBs are inefficient due to underutilised and low-yielding branches, an analyst said.

Consolidation may be in the cards of India’s public sector banks (PSBs) as the government commits to “comprehensively review lenders.”

Any reform that misses the mark on efficiency— digital rollouts, reduction of brick-and-mortar presences, voluntary retirement schemes, even mergers— may just mean that India will not meet its objective to become “world-leading”, said S&P Global Ratings.

“Despite digitalization, the PSBs are inefficient not just in comparison to private sector banks but also compared with other regional banks in South and Southeast Asia,” said Deepali V Seth Chhabria, credit analyst, S&P Global Ratings.

India’s PSBs s broadly contend with lower incomes than peers', higher staff costs and larger pension burdens, Seth Chhabria wrote in a report published 3 February 2026.

They also have underutilised and low-yielding branches. Whilst this supports financial inclusion, it diminishes efficiency, she wrote.

In contrast, SEA countries like Thailand and the Philippines have seen significant efficiency gains in recent years, with efficiency ratios exceeding those of their peers.

This is thanks to their digital rollouts, reduced branch and physical; presences, and even offers of voluntary retirement schemes, Seth Chhabria said.

"In our view, meaningful gains in cost efficiency are unlikely to arise from scale alone. Cost efficiency benefits would be reliant on commensurate rationalization, process simplification, of upskilling employees and technology-enabled productivity gains,” she said.

Banks may supplement these efforts by prioritizing digital innovation and customer-centric strategies to achieve reach and improved cost efficiency," she added.

Overall, Indian PSBs’ balance sheets are healthy, and asset quality pressures should be manageable, Seth Chhabria said.