PSU Bank Merger: These Lenders May Be Combined With Larger Banks To Create Mega Entities; Full List

PSU Bank Merger: These Lenders May Be Combined With Larger Banks To Create Mega Entities; Full List

India's public sector banking landscape may be headed for its most significant restructuring in five years, with the Centre examining a mega consolidation plan that could see several smaller state-run lenders being merged with larger ones. According to a recent Moneycontrol report citing government sources, the proposal under consideration involves the merger of some smaller banks, like IOB, CBI and BOI with large PSBs such as PNB, BoB and SBI.

Which Banks May Merge?

According to the report, potential merger candidates (smaller banks) are Indian Overseas Bank (IOB), Central Bank of India (CBI), Bank of India (BOI), and Bank of Maharashtra (BoM). Also, potential merging entities (larger banks) are State Bank of India (SBI), Punjab National Bank (PNB), and Bank of Baroda (BoB).

The government has not made any official announcement yet. These are proposals currently being discussed internally as per reports.

Timeline Being Considered

As per the Moneycontrol report, discussions are expected to continue through FY27, with the government seeking to finalise a roadmap within the same fiscal year. The proposal will first go through internal deliberations before any formal communication is made.

Why Another Round of PSB Consolidation?

The government aims to create fewer, stronger, globally competitive public sector banks capable of supporting India's next phase of economic expansion. The move will strengthen balance sheets to support large-scale credit growth, improve operational efficiency, reduce administrative duplication, enhance competitiveness against private banks and fintech players, and create banks that can handle high-ticket infrastructure and manufacturing loans.

This aligns with the broader banking sector reform agenda and follows the NITI Aayog's recommendations.

The NITI Aayog had earlier suggested that only a handful of large PSBs, including SBI, PNB, BoB and Canara Bank, should remain under full government control, while smaller lenders like IOB and CBI could be considered for privatisation, restructuring or merger.

The Moneycontrol report said that “the current plan builds on those recommendations but adapts them to present conditions". With fintechs scaling rapidly and private banks gaining market share, the Centre is looking to position PSBs “strategically rather than spread them thin", the person said.

The plan will undergo a “record of discussion" at the Cabinet level and then be examined by the Prime Minister's Office (PMO), according to the report.

What Is A ‘Record of Discussion'?

It is an internal government document that captures key deliberations and forms the basis for future decisions. Before a proposal moves to the Cabinet or PMO, a record of discussion ensures all preliminary points, disagreements and alternatives are documented.

A Look Back: PSB Mergers So Far

Between 2017 and 2020, the government undertook a major round of consolidation, reducing the number of PSBs from 27 to 12. Key mergers during the period included:

These were aimed at improving asset quality, strengthening governance, and bringing scale efficiencies.

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What Happens Next?

Any merger will involve detailed financial and operational assessments, inter-ministerial consultations, approval from bank boards, Cabinet and PMO approvals, and a fit-and-proper review by the RBI.

Source: News18
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