In the 2020s, several private banks and cooperative banks in India faced financial problems due to mismanagement, bad loans, or weak capital. The Reserve Bank of India (RBI) took various steps to rescue these institutions, protect depositors, and strengthen the banking system.
Rescue of Yes Bank
In April 2020, the RBI arranged a rescue plan for the troubled private lender Yes Bank. Under this plan, State Bank of India (SBI) invested in the bank along with other major lenders such as:
- ICICI Bank
- HDFC Bank
- Kotak Mahindra Bank
Initially, SBI acquired a 48% stake in Yes Bank, which was later reduced to about 30% through a Follow-on Public Offer (FPO).
Takeover of Lakshmi Vilas Bank
In November 2020, the RBI asked DBS Bank India Limited (DBIL) to take over the operations of Lakshmi Vilas Bank (LVB) after the bank’s financial position worsened due to mismanagement and failed merger attempts with NBFCs.
At that time:
- Lakshmi Vilas Bank had 559 branches
- DBS Bank India had only 12 branches
After the takeover, DBS significantly expanded its presence in India. In a rare move, the RBI also asked Tier-II bondholders of LVB to write off their investments.
Resolution of Punjab and Maharashtra Co-operative Bank
In January 2022, the RBI directed Unity Small Finance Bank (Unity SFB) to take over the operations of the troubled Punjab and Maharashtra Co-operative (PMC) Bank, which had been affected by a major financial scam.
Unity SFB was created by:
- Centrum Finance
- BharatPe (a digital payments company)
This was the first time a cooperative bank was merged into a newly created small finance bank.
HDFC Bank and HDFC Merger
One of the biggest mergers in India’s financial sector occurred when HDFC Bank merged with its parent company HDFC Ltd.
Before the merger:
- HDFC transferred its subsidiary Gruh Finance to Bandhan Bank in exchange for a 15% stake.
After the merger, the combined entity was temporarily allowed to hold up to 9.5% stakes in several banks, including:
- ICICI Bank
- Axis Bank
- Yes Bank
- Bandhan Bank
- IndusInd Bank
- Suryoday Small Finance Bank
The merged entity was given one year to comply with regulatory limits.
Merger of Small Finance Banks
In October 2023, the RBI approved the merger of Fincare Small Finance Bank with AU Small Finance Bank.
Under this arrangement:
- Fincare shareholders received 579 shares of AU Small Finance Bank for every 2,000 shares held.
- From 1 April 2024, Fincare was merged into AU Small Finance Bank.
This merger removed Fincare’s requirement to list separately on the stock exchange.
Conversion of Small Finance Bank to Universal Bank
In August 2025, the RBI gave in-principle approval for AU Small Finance Bank to convert into a universal private sector bank.
This was a major milestone, as it was the first approval for a new private sector bank conversion in over 11 years.
Acquisition of NE Small Finance Bank
In 2023, the RBI approved the proposal for Slice’s digital banking unit (DBU) to acquire NE Small Finance Bank, which was facing financial difficulties.
Earlier:
- Slice had already purchased 10% stake in NE Small Finance Bank in two phases during 2022 and 2023.
This was the first case of a digital banking unit acquiring a small finance bank.
Foreign Participation in Indian Banking
Foreign banks and global investors have also participated in India’s banking sector in recent years.
Some key developments include:
- March 2022: Citibank sold its credit card and retail banking business in India to Axis Bank in a deal worth over $1 billion.
- October 2024: Standard Chartered India sold its personal loan portfolio worth $488 million to Kotak Mahindra Bank.
- September 2025: Deutsche Bank put its Indian retail banking business up for sale, including 17 branches and revenue of about $278 million.
Other important developments include:
- RBI giving in-principle approval to SMBC to acquire a majority stake in Yes Bank.
- Emirates NBD receiving approval to set up a wholly owned subsidiary in India.
- Blackstone investing $705 million to acquire 9.9% stake in Federal Bank.
Revamp of Regional Rural Banks
Under reforms implemented in the late 2010s, many Regional Rural Banks (RRBs) were merged to create larger state-level institutions.
These mergers helped:
- Improve efficiency
- Reduce competition among RRBs
- Strengthen their relationship with sponsor public sector banks
Review of Cooperative Banks
The RBI has also been actively reviewing the financial health of cooperative banks.
Licence Cancellations in 2024
In July 2024, RBI cancelled licences of several cooperative banks due to weak financial conditions and poor earning capacity, including:
- Durga Co-operative Urban Bank (Vijayawada)
- Banaras Mercantile Co-operative Bank (Varanasi)
- City Co-operative Bank (Mumbai)
- Purvanchal Co-operative Bank (Ghazipur)
Earlier in January 2024, licences of several other cooperative banks were also cancelled.
Licence Cancellations in 2025
In April 2025, RBI cancelled licences of:
- Colour Merchants Co-operative Bank (Ahmedabad)
- Ajantha Urban Co-operative Bank (Aurangabad)
Depositors of these banks are eligible for insurance up to ₹5 lakh per account through the Deposit Insurance and Credit Guarantee Corporation (DICGC).
Revival of Cooperative Banking
The government has also expressed plans to strengthen the cooperative banking sector.
Union Home Minister Amit Shah announced that the government aims to expand urban cooperative banking and ensure that every city with a population of more than 2 lakh people has a cooperative bank within five years.
Conclusion
The 2020s have seen major changes in India’s banking sector, including rescues of troubled banks, mergers, foreign investments, and regulatory reforms. These steps aim to create a stronger and more stable banking system while protecting depositors and improving financial services across the country.