India's banking sector stands at a critical juncture, facing a fundamental question that could shape its future trajectory: should the country focus on creating bigger banks through consolidation, or should it prioritize building better, more resilient financial institutions? This debate has gained renewed urgency as global economic turbulence intensifies and multiple risks emerge simultaneously.
The Growing Threat Landscape
Global financial systems are navigating increasingly choppy waters, with risks multiplying across multiple fronts. Cyber threats have evolved into sophisticated attacks targeting financial infrastructure, while digital fraud schemes are becoming more advanced and widespread. Simultaneously, trade conflicts and climate-related disruptions are creating new challenges for financial stability.
According to banking expert TCA Ranganathan, whose analysis was published on November 15, 2025, these converging threats demand a serious re-evaluation of India's banking strategy. The traditional approach of creating larger entities through mergers may not adequately address the complex risk environment that modern banks must navigate.
The Consolidation Conundrum
The push for bank mergers in India has been driven by the logic of scale - larger banks theoretically possess greater capital buffers, broader geographic reach, and enhanced operational efficiencies. However, critics argue that size alone doesn't guarantee robustness in the face of evolving threats.
Ranganathan's perspective suggests that the quality of risk management, technological adaptation, and governance structures may matter more than sheer scale. The experience of global financial institutions during recent crises has demonstrated that even the largest banks can be vulnerable if their internal systems and risk assessment capabilities are inadequate.
Digital Transformation and Security Imperatives
The rapid digitization of banking services has created both opportunities and vulnerabilities. While digital platforms have expanded financial inclusion and improved customer convenience, they've also opened new avenues for cyber attacks and digital fraud. India's banking system must balance innovation with security, ensuring that technological advancement doesn't outpace protective measures.
Climate-related risks represent another growing concern for the banking sector. As extreme weather events become more frequent and trade patterns shift due to environmental factors, banks must develop sophisticated models to assess and mitigate these emerging threats. The traditional focus on financial metrics alone may no longer suffice in this new risk landscape.
The debate ultimately centers on whether India should continue its consolidation drive to create banking behemoths that can compete globally, or whether it should focus on strengthening individual banks' capabilities to handle specific threats. Both approaches have merit, but the changing nature of global risks suggests that quality and adaptability might be more valuable than pure scale in the coming years.
