Merger of two public sector banks may happen by the end of the year.
Soon the country may get the third largest government bank. In fact, preparations for the merger of two big government banks have started. There is news that these two banks will be merged by the end of the year. According to sources in the FE report, the preliminary process of merger between Union Bank of India and Bank of India (BOI) has started. Both banks are currently conducting due diligence, which includes internal assessment of processes and operational integration. Some officials say the merger could be completed by the end of the calendar year.
4 to 5 banks will be formed by merger of government banks
On the condition of anonymity, a senior banking official said that the government wants to create four to five big government banks instead of the existing 12 banks by merging small banks with big banks. The merger will create one of the largest public sector banks in the country, with a significantly expanded balance sheet, branch network and customer base. The joint entity will become the second largest public sector bank with assets of about Rs 25.4 lakh crore in FY 2025 and the third largest after State Bank of India and HDFC Bank.
In terms of market cap, the merged bank will be ranked sixth with about Rs 2.13 lakh crore at current prices, leaving behind Bank of Baroda, Canara Bank and Punjab National Bank. Currently, Union Bank and Bank of India are the fifth and sixth largest public sector banks respectively.
Challenges of the merger process
Given the differences in core banking systems and digital architecture, a major challenge in the merger process will be the integration of tech platforms. However, till now no statement has come from both the banks. Both Union Bank and Bank of India have reported consistent improvement in asset quality and profitability in recent quarters, driven by low wastage, recovery from distressed accounts and strong capital reserves.
The proposed merger follows a massive merger drive undertaken by the government between 2017 and 2020, under which 10 public sector banks were merged into four larger institutions, reducing the number of public sector banks from 27 to 12. Since then, policymakers have repeatedly stressed the need to create a smaller number of but stronger lenders, capable of meeting India’s growing loan demand, funding large infra projects and competing more effectively with private sector counterparts.