PSU Banks Merger: UCO, IOB, BOI, BOM, Central Bank; Which PSBs Will Merge Next? Can SBI Take More?

India aims to form global-scale banks instead of running too many small banks in the country. With that, the Finance Minister Nirmala Sitharaman has upped their process to identify and consolidate public sector banks (PSBs). In an event this week, she signaled that the work has commenced for the next phase of the PSU bank merger. Currently, there are six PSBs that are not merged.

Finance Minister PSU Bank Mergers Latest Update:

During an event on November 6, Sitharaman said India needs "a lot of big, world-class banks" to meet the growing needs of a fast-expanding economy. She revealed that the ministry will need to sit and discuss with the Reserve Bank of India (RBI) and banks on how they want to take it forward.

Further, she said they will discuss with RBI how they want to build larger banks. Accordingly, she said, work has begun. She reiterated that the consolidation of PSBs is not just an amalgamation but the creation of an environment where banks can grow and thrive.

Top PSU Bank Mergers:

The vision of having fewer and stronger PSU banks was introduced by former Finance Minister Arun Jaitley. Hence, 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.

Here are the biggest mergers of PSU Banks since 2017:

1. State Bank Of India (April 2017):

The largest PSU lender merged six of its own associate banks namely State Bank of Bikaner And Jaipur, State Bank of Hyderabad, State Bank of Patiala, State Bank of Mysore, State Bank of Travancore, and Bharatiya Mahila Bank.

This made SBI the largest PSU bank in India.

2. Bank of Baroda (April 2019)

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)

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.

4. Canara Bank (April 2020)

Canara Bank has taken Syndicate Bank into its ambit.

5. Indian Bank (April 2020)

Indian Bank also merged with Allahabad Bank.

6. Union Bank of India (April 2020)

This lender merged Corporation Bank and Andhra Bank.

PSU Banks Not Merged:

Currently, there are six banks who are not merged and operating as independent entities. These are:

1. Indian Overseas Bank

2. UCO Bank

3. Bank of Maharashtra

4. Central Bank of India

5. Punjab & Sind Bank

6. Bank of India

Who Will Be Merged Next?

There have been several reports stating that the government is looking to form just four large banks. Recently, report said that FM is evaluating a proposal that suggested merger of Union Bank of India and Bank of India since they are both Mumbai-based. If this does happen, Union Bank will become the second largest PSU bank after SBI.

Union Bank of India - Bank of India: A combination of these two would likely expand capital base, wider distribution network and bring greater scope to meet the country's growing credit demand.

Then there is the potential merger of Chennai-based Indian Overseas Bank (IOB) and Indian Bank that could drive the southern credit market of India. Alongside, Punjab & Sind Bank and Bank of Maharashtra consolidation is likely on the cards too.

It will be keenly watched if SBI, PNB or Bank of Baroda will take more of these PSU banks under their umbrella.

As per PL Capital's blog, the government's renewed push for consolidation and selective privatisation signals its intent to create a leaner, stronger, and more efficient public-sector banking system. For the markets, it reflects confidence in the sector's stability and readiness for the next leg of structural reform. If executed effectively, the plan could reshape India's financial ecosystem - with fewer banks, stronger governance, and a sharper focus on growth and profitability.