Government Plans New PSU Bank Merger, Eyes Privatization Of Smaller Lenders

New Delhi, Oct 30:

News in Short (60 words): bank merger

The Indian government plans to merge Union Bank of India and Bank of India, creating the second-largest public sector bank after SBI, with assets worth ₹25.67 lakh crore. It also considers merging Indian Overseas Bank with Indian Bank, while Punjab & Sind Bank and Bank of Maharashtra may face privatization under the next phase of banking reforms.

News in Detail: bank merger

The Indian government is preparing another major round of consolidation in the public sector banking space. According to a Mint report citing people familiar with the matter, the Centre is working on a plan to merge Union Bank of India and Bank of India, a move that could create the country’s second-largest state-run bank after the State Bank of India (SBI). bank merger

The proposal is part of the government’s broader effort to strengthen India’s banking system by scaling up lenders, reducing operational overlaps, and creating large, globally competitive financial institutions.

At present, the second largest public sector bank in the country is Bank of Baroda, which has assets worth ₹18.62 lakh crore. However, overall, State Bank of India holds the first position, while HDFC Bank is second and ICICI Bank is in the third position.bank merger

A New Banking Giant in the Making

Currently, Bank of Baroda holds the position of India’s second-largest public sector bank with total assets of ₹18.62 trillion (as of June 30).
However, a merged Union Bank of India–Bank of India entity would boast combined assets worth ₹25.67 trillion, nearly matching ICICI Bank’s ₹26.42 trillion asset base and overtaking Bank of Baroda in size.

If implemented, the merger would significantly reshape India’s banking hierarchy: bank merger

SBI – Largest
Merged Union Bank + Bank of India – Second Largest PSU
Bank of Baroda – Third
HDFC Bank and ICICI Bank – Leading private sector counterparts

Key Highlights of the Proposed Merger Plan

The government is also considering merging Indian Overseas Bank (IOB) with Indian Bank, both headquartered in Chennai, the report added.
In addition, Punjab & Sind Bank and Bank of Maharashtra — the two smaller public sector lenders — are being evaluated for privatization at a later stage.

Union Bank of India + Bank of India → To merge and become the second-largest PSU bank.
Indian Overseas Bank + Indian Bank → Another merger being evaluated.
Punjab & Sind Bank + Bank of Maharashtra → Potential candidates for future privatization.

Why the Mergers Matter

The Finance Ministry’s long-term goal is to create a leaner, more robust public banking ecosystem that can better handle economic shocks, boost credit growth, and compete on an international level.

“The idea is to build scale and efficiency — fewer banks, but each one stronger and more capable,” a senior official familiar with the plan was quoted as saying. bank merger

Analysts say that larger balance sheets would also improve lending capacity, attract foreign investors, and help banks meet Basel capital adequacy norms more effectively.

A Look Back: From 27 Banks to 12

India’s public sector banking network has already undergone a significant transformation.
Between 2017 and 2020, the government merged 10 banks into four, bringing down the total number of PSBs from 27 to 12. Key mergers during that phase included:

Oriental Bank of Commerce and United Bank of India with Punjab National Bank
Syndicate Bank with Canara Bank
Allahabad Bank with Indian Bank
Corporation Bank and Andhra Bank with Union Bank of India

The upcoming consolidation, if executed, would mark “Banking Reform 2.0”, signaling a new era of large, competitive public sector banks with the scale to drive India’s $5 trillion economy ambition.

The Road Ahead

While the mergers are still at the planning stage, industry insiders expect formal announcements after the necessary due diligence and consultations with the Reserve Bank of India (RBI).
The proposed restructuring reflects the government’s dual strategy — strengthen big banks through mergers and privatize smaller ones to improve overall efficiency in the sector.

If completed, India’s banking map could look dramatically different once again — fewer banks, larger balance sheets, and stronger financial stability.

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