Mid-sized banks—including Indian Overseas Bank (IOB), Central Bank of India (CBI), Bank of India (BOI), and Bank of Maharashtra (BOM)—are expected to be merged with SBI, PNB, or BOB. Let us explain how the government is planning to merge banks.
Bank Merger: A major update has emerged on the central government’s mega merger plan for banks. Media reports, citing sources, say the government is working on an ambitious public sector bank (PSB) consolidation scheme, which would reduce the number of public sector banks from 12 to just four by fiscal year 2027. The four potential mergers include State Bank of India (SBI), Punjab National Bank (PNB), Bank of Baroda (BoB), and Canara-Union Bank.
The proposal, being considered by the Finance Ministry, aims to strengthen balance sheets, improve operational capacity, and strengthen the country’s public sector banks globally. Sources quoted by Moneycontrol say the plan is to reduce the number of public sector banks from the current 12 to four. Smaller banks will first be merged with larger banks, and then further consolidated to form larger units capable of meeting India’s growth needs.
Canara-Union Bank to be merged
According to a source, the central government is moving forward with the merger of Canara Bank and Union Bank of India. This merger is expected to create one of four surviving entities. Indian Bank and UCO Bank are also being considered for integration into this structure, creating another large bank that will join SBI, PNB, and Bank of Baroda as other major lenders.
Other mid-sized banks – including Indian Overseas Bank (IOB), Central Bank of India (CBI), Bank of India (BOI), and Bank of Maharashtra (BOM) – are expected to be merged with SBI, PNB, or Bank of Baroda. No decision has yet been made on Punjab & Sind Bank. The source added that depending on the final outline, it could also be merged with one of these four.
Multiple Levels of Scrutiny
The merger plan will first be presented to the Finance Minister for approval. Once approved, the plan will undergo multiple levels of scrutiny, including input from senior officials in the Cabinet Secretariat, scrutiny by the Prime Minister’s Office (PMO), and regulatory comments from the Securities and Exchange Board of India (SEBI). The source said that a record of the discussions will be prepared and will be processed in stages. Only after the Finance Minister’s approval will it be sent to the Cabinet and the Prime Minister’s Office. SEBI’s opinion will also be sought, taking into account market implications.
Promoting Consolidation
The government hopes that this restructuring will be an important step in preparing the banking sector for increasing loan demand, given India’s continued high-growth target. Larger and stronger public sector banks are considered better positioned to provide larger loans, help finance infrastructure projects, and compete with private banks that have expanded aggressively in recent years. Officials also argue that consolidation will help rationalize the branch network, reduce costs, and improve capital utilization across the system. According to the source, the government believes this round of mergers will be more smooth.
