PSU Banks Merger Recap: 12 Public Sector Banks To Merge To 4 By FY27? IOB, BOI, BOM, UCO Fate On Alert Ahead

The Indian government aims for larger, world-class but fewer banks. Over the past few years, the number of public sector banks has declined significantly through stake sales, acquisitions, and mergers. Once again, the PSU bank merger has taken the limelight, with the fates of smaller lenders like Indian Overseas Bank, Bank of Maharashtra, Bank of India, Central Bank of India, UCO Bank, and Punjab & Sind Bank yet to be decided. Major lenders like SBI, Bank of Baroda, PNB, Canara Bank, or Union Bank are expected to divide and merge either of these banks. As per reports, the government is likely going to reduce the number of PSBs from 12 to 4 by financial year 2026-27.

PSU Banks Merger 2.0:

As of December, government officials have denied any plans for a bank merger in the Parliament's winter session.

Recently, when asked on whether the state-run banks will be merged to form larger banks, the Minister of State for Finance Pankaj Chaudhary said, "Presently, no proposal on merger or consolidation of Public Sector Banks (PSBs) is under consideration of the Government." The reply was written to a question asked in the Lok Sabha.

However, at an SBI conclave, Finance Minister Nirmala Sitharaman said, "India needs a lot of big banks, world-class banks." She signaled that the government will have to sit and talk with the Reserve Bank and with the banks themselves to see how they want to take it forward. She revealed last month, the work for the bank merger has already commenced.

Who Are Next PSU Bank Merger?

It is expected that Indian Overseas Bank, UCO Bank, Bank of India, Central Bank, Bank of Maharashtra could join larger banks like SBI, Bank of Baroda, PNB, Canara Bank or Union Bank.

SBI also revealed that they are ready if they have to enter into the next phase of banks merger. In a latest interview with Bloomberg, SBI Chairman Challa Sreenivasulu Setty revealed that another round of consolidation could be practical and beneficial. He said, "Some more rationalisation may make sense. There are still a few smaller, sub-scale banks. If there is another round, it may not be a bad idea."

Earlier, a Niti Aayog report suggested the government either privatize or restructure smaller banks like Central Bank of India and Indian Overseas Banks. The country's think tank believes that the Indian government should keep a few large state-run banks which include Punjab National Bank (PNB), Bank of Baroda (BoB), Canara Bank, or State Bank of India.

While the rest of the smaller state-run banks could be either opt for privatisation or merges or reducing government stake in them.

What Is The Process For Bank Mergers?

The process takes years of reviewing, recommendations and evaluation every aspects involved in the merger. The finance ministry reviews the proposal first, then cabinet, PMO and market regulator Sebi's approval.

A FY27 plan could double efficiencies. Overlaps drop by 20-30%. Loan books expand 15-20% yearly. Capital ratios strengthen above 12%, as per The Logical Indian report.

Biggest PSU Banks Merger Recap:

From 2017 to 2020, the government has merged 10 PSU banks into four larger entities. This reduced the number of banks significantly to 12 currently from 27 earlier.

1. State Bank Of India (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. Bank of Baroda (April 2019)

Bank of Baroda + Vijaya Bank + DENA Bank

Bank of Baroda emerged as the second largest bank in PSUs after merging Vijaya Bank and Dena Bank.

3. Punjab National Bank (PNB) (April 2020)

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

PNB merged Oriental Bank of Commerce and United Bank of India, which led the lender to become second largest PSU bank in India.

Notably, in 2020, a series of PSU banks consolidation took place. These are:

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.

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