Public sector banks (PSBs) in India may see another round of mergers. Under this, once again small banks can merge with big banks. Government sources told Moneycontrol that its aim is to streamline the landscape of public sector banks. This is so that there are fewer but stronger entities that can support the next round of credit expansion and financial sector reforms.
Government sources say that under the plan, Indian Overseas Bank (IOB), Central Bank of India (CBI), Bank of India (BOI) and Bank of Maharashtra (BOM) can be merged with big banks like Punjab National Bank (PNB), Bank of Baroda (BoB) and State Bank of India (SBI). The government wants to improve the operations of public sector banks by creating larger, stronger banks with better balance sheets.
Roadmap may be finalized in financial year 2027
The record of discussion on the plan will first be prepared by senior cabinet level officials. After that the Prime Minister’s Office will investigate it. The record of discussion is an internal government document that contains the main points of the discussion. This becomes the basis for further decisions and approvals. Discussions are expected to continue and the roadmap may be finalized in FY 2027. FY 2027 may be an indicative timeframe for consultations, meaning that inter-ministerial discussions on these proposals are expected to take place in FY 2027. During this time, opinion of the banks involved in the possible merger can be taken. According to a source, the government wants to build consensus internally before making any formal announcement.
Government think tank NITI Aayog has proposed retaining only a few big public sector banks – SBI, PNB, Bank of Baroda and Canara Bank. It was proposed to privatize, merge or reduce government stake in the remaining public sector banks. “The current plan is based on the same recommendations but has been adapted to the current circumstances. With the rapid expansion of fintech and the growing size of private banks, the idea is to strategically strengthen public sector banks rather than breaking them into smaller numbers,” a source told Moneycontrol.
Which banks have merged before?
Earlier, between 2017 and 2020, the government had merged 10 public sector banks into 4 big banks. After this the number of government banks reduced to 12. In 2017 it was 27. During 2017 to 2020, under the government plan, State Bank of Bikaner and Jaipur, State Bank of Hyderabad, State Bank of Mysore, State Bank of Patiala, State Bank of Travancore and Bharatiya Mahila Bank merged into State Bank of India. Oriental Bank of Commerce and United Bank of India merged into Punjab National Bank. Syndicate Bank merged into Canara Bank, Dena Bank and Vijaya Bank merged into Bank of Baroda, Allahabad Bank merged into Indian Bank, Andhra Bank and Corporation Bank merged into Union Bank of India.