PSU Banks Merger: IOB, BOM, BOI Central Bank, UCO Merger In Focus For Budget! Next Potential Mergers?

With the upcoming Budget 2026, once again big consolidation announcement related to the PSU banks merger is in the limelight. For the upcoming financial year 2026-27, Finance Minister Nirmala Sitharaman will present India's budget on February 1st. Among major reforms and policies in the banking & financial sector, the market will look for a new update or decision for the next phase of the banks' merger. Currently, there are six PSU banks that await their fate to join the government's vision of 'world-class' banks. The agenda behind the PSU bank merger is to have 'fewer' but 'bigger' and 'stronger' banks in the country.

Banks Merger News In Budget?

The agenda to reform Indian public sector banks has gained attention over the past few weeks ahead of the Union Budget 2025-26.

Recently, a Financial Express report cited sources familiar with the development, that Prime Minister Office may set up a meeting soon on the banks merger. It said, discussion is likely to be held on proposals for merger from the department of financial services. The proposals are --- fresh round of consolidation, greater operational autonomy for the PSB boards, and a phased plan to raise the FDI limit to 49% from 20% at present, to help PSBs raise additional capital and obviate their dependence on the exchequer.

Banks Privatisation Announcement In Budget's History:

There are several major announces made for government-backed entities privatisations in the past Budgets. For instance, former Finance Minister Arun Jaitley during Budget 2018-19 announced the merger of three PSU insurers namely Oriental Insurance, National Insurance, and United India Insurance --- into one entity. However, the idea was dropped in July 2020.

Then the current Finance Minister Nirmala Sitharaman announced a big-ticket privatization agenda during Budget 2021-22, which included two public sector banks and one general insurance company. Although the plan received many positive views and was seen as a good step forward, it was belated and eventually did not proceed.

What To Expect: PSB Merger Ahead?

As per a report by Juhi Pandey, a junior legal associate and an LL.B. graduate from the Faculty of Law, University of Delhi, a new round of PSB mergers may follow the 2017 and 2019-20 mergers that reduced the number of PSBs from 27 to 12. It is expected that the merger will result in larger banks with stronger risk management, operational efficiency, and the capacity to meet growing credit demand.

In case of privatization, her note said, select PSBs, first identified in the 2021-22 Budget for privatization, may be reconsidered to create globally competitive lenders. The goal is to develop at least two PSBs capable of ranking among the world's top 20 banks.

PSU Banks Merger Next Phase Implementation:

As per several reports, government is likely to reduce PSU bank numbers to 6 or 4 large banks. Taking into consideration past privatisations date, government merged SBI and six associates in April 2017, Bank of Baroda merged with two small banks in April 2019, and carried at least for big consolidations in April 2020.

If going by the pattern, the next round of banks merger could be implemented in April or May 2026.

Which Banks Are Not Merged?

There are six banks that are currently in the PSU banking system as single entities. These are

- Central Bank Of India

- Bank of India

- Bank Of Maharashtra

- UCO Bank

- Punjab & Sind Bank

- Indian Overseas Bank.

According to PL Capital who cited officials quote that the government's long-term objective is to reduce the number of PSU banks from the current 12 to about 6-7 larger, more competitive institutions. The consolidation will focus on building lenders with stronger balance sheets, improved lending capacity and better operational efficiency-particularly to support India's expanding infrastructure pipeline.

List Of Big Banks Merger In India:

In more than three decades, the Indian financial system has seen significant transformation, and merger of two or multiple banks to form one uniform and strong bank is part of this paradigm shift.

Here are some of the important banks merger since 1993:

1. April 2017

SBI + State Bank of Bikaner And Jaipur + State Bank of Hyderabad + State Bank of Patiala + State Bank of Mysore + State Bank of Travancore + Bharatiya Mahila Bank

In April 2017, SBI merged six of its associate banks, becoming the largest PSU bank in the country. SBI was the first experiment when the banks consolidation idea was sparked in 2017. The idea of having fewer but stronger PSU banks was first introduced by former Finance Minister Arun Jaitley.

2. April 2019

Bank of Baroda + Vijaya Bank + DENA Bank

Baroda Bank added the two banks under its ambit, which led the bank to become third largest PSU bank in India.

3. April 2020

Punjab National Bank + Oriental Bank of Commerce + United Bank of India

By merging Oriental Bank of Commerce and United Bank of India, PNB became the second-largest PSU bank in terms of branch network.

4. April 2020:

Canara Bank + Syndicate Bank

This Bengaluru-based bank is now the fourth largest public sector bank in India after it merged Syndicate Bank.

5. April 2020:

Union Bank of India + Andhra Bank + Corporation Bank

Union Bank became the fifth largest PSU lender in India after merging with Andhra and Corporation Banks.

6. April 2020

Indian Bank + Allahabad Bank

Because of merging Allahabad Bank in its network, Indian Bank is now the seventh largest PSU bank of the country.