Few years after the independence, the old Imperial Bank of India was ten times bigger than the Hon Kong &/ Shanghai Bank (HSBC). Since then, the Imperial Bank has morphed into the State Bank of India (SBI), our domestic banking behemoth which towers over its competitors h ere. Yet, SBI is today a mere tenth of the modern HSBC’s size. This paper tries to give an insight about how Indian Banks — just like their peers in manufacturing — have lost out in the quest for global scale. Despite having achieved a lot over the past few decades, from expanding their rural reach to cleaning the balance sheets, Indian banks continue to be pygmies in the land of giants. With the increasing levels of globalization of the Indian banking industry, evolution of universal banks and bundling of financial services, competition in the industry is set to intensify further. The industry has the potential and the ability to rise to the occasion as demonstrated by the rapid pace of automation, which has already had a profound impact on raising the standard of banking services. However, the author also observe through this paper that on the positive side, the policy developments during 2005 indicated willingness, both on the part of the government and banking entities, to meet the challenges of global competition and at the same time capitalize on the business opportunities and technological support. However, in parallel terms, competitive pressures and loss of market share led to banks compromising on their margins. Nevertheless, their keenness to compete with their global peers by acquiring size and scale, setting up franchises overseas and getting overseas listing, accentuated the desire to benchmark themselves to global standards. The article concludes that the Indian banking sector compares well with the global benchmarks, thanks to prudential supervision and the measures undertakes by the Reserve Bank of India and the Government. The paper is divided into three parts. In the first part we make a comparison of Indian banks with their global counterparts by looking at some key indicators, the second part deals with the micro analysis of recent trends in the banking industry and finally the third section deals with future challenges.