The Indian banking sector is reportedly preparing for another phase of large-scale consolidation, with discussions underway for a new round of mergers among Public Sector Banks (PSBs).
This strategic move aims to create fewer but significantly larger and more resilient public sector lenders, positioning them to meet the growing credit demands of India’s expanding economy. The consolidation drive is seen as crucial for streamlining PSB operations, enhancing capital efficiency, and enabling the merged entities to pursue major financial sector reforms and global business expansion.
The main rationale behind this mega-merger initiative is to equip PSBs with the necessary financial muscle and operational scale required to compete effectively, both domestically and internationally. Consolidating smaller banks into stronger, better-capitalized entities helps reduce operational overlaps, rationalize branch networks, and implement best practices in technology and governance across the merged organizations. This streamlined structure is intended to improve profitability, optimize public capital deployment, and strengthen the overall health of the public banking system.
According to reports, several banks are being considered for inclusion in this next phase of consolidation. The proposal suggests that smaller lenders such as Indian Overseas Bank (IOB), Central Bank of India (CBI), Bank of India (BOI), and Bank of Maharashtra (BOM) could be merged with some of the biggest banks in India. The potential anchor institutions for these mergers include the State Bank of India (SBI), Punjab National Bank (PNB), and Bank of Baroda (BoB). Such a move would further concentrate banking assets under a few dominant public sector institutions.
This forthcoming plan follows successful precedents set by the government between 2017 and 2020. During those years, the government significantly reduced the number of PSBs by executing strategic mergers, transforming several smaller banks into large, unified entities. Notable examples include the merger of Oriental Bank of Commerce and United Bank of India into Punjab National Bank, the amalgamation of Andhra Bank and Corporation Bank into Union Bank, the merger of Syndicate Bank into Canara Bank, and the integration of Allahabad Bank into Indian Bank. These exercises were undertaken to enhance operational scale and governance.
The timeline for the current proposal is expected to proceed in a phased manner, beginning with detailed discussions at the Cabinet level. Following Cabinet approval, the proposal will then be placed for further deliberation at the Prime Minister’s Office (PMO). If approved, this consolidation will mark another significant milestone in reforming India’s public banking landscape, creating institutions ready for the next phase of financial sector reforms and national business expansion.
