The government is preparing a major reform to strengthen the country’s public sector banks and make them among the top 100 most powerful banks in the world. This reform is being seen as a big merger. For this, ‘Mega Merger Plan’ is being prepared by the government. According to media reports, the government is planning to merge 12 public sector banks of the country. From which three big banks will be created. This means that on an average four banks will be merged to create one bank. According to a recent report by Moneycontrol, quoting government sources, the proposal under consideration could involve merger of some small banks, such as IOB, CBI and BOI, with big banks like PNB, BOB and SBI.
Which banks can be merged?
According to the report, the potential merger (smaller banks) are Indian Overseas Bank (IOB), Central Bank of India (CBI), Bank of India (BOI) and Bank of Maharashtra (BOM). Apart from this, the potentially merged entities (big 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. According to reports, these proposals are currently being discussed internally.
Thinking about the deadline?
According to Moneycontrol report, the discussions are expected to continue till FY 2027, and the government wants to finalize a roadmap in this financial year itself. The proposal will be discussed internally before any formal announcement.
Why are banks being merged?
The government aims to create smaller, stronger and globally competitive public sector banks that can support the next phase of India’s economic expansion. The move will strengthen the balance sheet to support large-scale loan growth, improve operational efficiency, reduce administrative duplication, enhance competitiveness vis-à-vis private banks and fintech companies, and create banks that can handle high-ticket infrastructure and manufacturing loans.
NITI Aayog had earlier suggested that only a few large public sector banks, including SBI, PNB, Bank of Baroda and Canara Bank, should remain under full government control, while privatization, restructuring or merger of smaller lenders like IOB and CBI could be considered.
“The current plan is based on the same recommendations, but adapted to current circumstances,” the Moneycontrol report said. With fintech companies expanding rapidly and private banks increasing their market share, the Center is looking at “strategically placing rather than dispersing” public sector banks. According to the report, “a record of the discussion” on the scheme will be made at the cabinet level and then it will be examined by the Prime Minister’s Office (PMO).
What is ‘record of discussion’?
It is an internal government document that records major deliberations and forms the basis of future decisions. Before a proposal goes to Cabinet or the Prime Minister’s Office, a record of the discussion ensures that all starting points, disagreements and alternatives are documented.
How many banks have been merged so far?
Between 2017 and 2020, the government carried out a massive round of mergers, reducing the number of public sector banks from 27 to 12. Major mergers that took place during this period included the merger of Oriental Bank of Commerce (OBC) and United Bank of India into PNB. Syndicate Bank was merged with Canara Bank. Andhra Bank and Corporation Bank were merged into Union Bank of India (UBI). Allahabad Bank was merged with Indian Bank. Their objectives were to improve asset quality, strengthen governance and bring efficiencies of scale.