The proposed merger plan is set to be discussed first at the Cabinet level, followed by scrutiny from the Prime Minister’s Office (PMO). Officials believe that consolidating smaller PSBs into larger, digitally capable institutions will improve efficiency, competitiveness, and financial stability in the sector.
This initiative marks a shift from earlier recommendations by NITI Aayog, which had suggested privatising or restructuring smaller banks while retaining only a few large PSBs like SBI, PNB, BoB, and Canara Bank under government control. The current plan seeks to implement strategic mergers in line with the growing role of fintechs and the expansion of private banks in India.
In 2020, the government had already approved a consolidation plan merging ten PSBs into four larger entities to create digitally driven banks with broader national and international presence. This included:
- Amalgamation of Oriental Bank of Commerce and United Bank of India into Punjab National Bank
- Amalgamation of Syndicate Bank into Canara Bank
- Amalgamation of Andhra Bank and Corporation Bank into Union Bank of India
- Amalgamation of Allahabad Bank into Indian Bank
The renewed merger push aims to streamline operations, strengthen balance sheets, and enable the consolidated PSBs to compete effectively with private banks and fintechs. Analysts note that the move could lead to enhanced credit availability, improved risk management, and better service delivery to customers across the country.
Experts highlight that while mergers create efficiency, they also require careful integration of staff, technology, and legacy systems to avoid operational disruption. Financial regulators and bank managements are expected to formulate a comprehensive roadmap for the proposed consolidation to ensure smooth transitions.