There were many banks in India before nationalisation of the private banks and after nationalisation also the converted entity called as PSU banks were successfully doing their business. Individual banks had different management and administration and had different clients to whom these banks served the loans and other services. Though RBI is the overall regulatory authority but the banks worked under different ideologies and had aligned to different business houses and in that process the recovery of the loans was staggered and some NPA issues arose out of these situations. Considering this and many other factors Govt thought to merge some of the banks in one single entity to bring a change in the working of these banks and basically it was a managerial exercise to change the mindset of working persons by bringing changes in the structure subsequent to these mergers. Management Gurus often claim that reorganisation and restructuring help in many cases and Govt believed that this envisaged change would be beneficial for the financial health of the country.
Some of the anticipated benefits out of this merger are cutting the extra manpower by integrating the branches of different banks, making more transparency in the system, being a bigger entity would increase the funds in hand and their easy deployability, increase of income as some expenses are common between the branches, bigger banks can operate in an international platform where bigger opportunities are there undertaking international transactions, coordination with mutual funds and share dealing companies can be done from a single point for intelligent investing etc.
On the other hand there are some downsides also like managing a bigger company requires a competent leader at the top, managing a large number of employees and their union affiliations would be a challenging task, switching of customer from one bank to another would not be so easily available to the customer as it is available today etc.
There are always pros and cons in such important decisions and Govt would take a conscious decision based on the advices of expert committees.
Knowledge is power.