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The debate around consolidation of public sector banks (PSBs) has again resurfaced. The reports suggest that the government may once again consider merging state-run lenders to create larger, globally competitive institutions. According to The Economic Times, the issue is likely to be discussed at the upcoming PSB Manthan.
The Finance Ministry is planning to organise a two-day PSB Manthan from September 12 to discuss and design the next wave of reforms for public sector banks (PSBs). MD&CEOs of all 12 PSBs will participate in the event to discuss on improving the performance of Public Sector Banks. Click here to read about PSB Manthan.
If the government goes ahead with another round of bank amalgamations, it will mark a major turning point for the Indian banking industry. Such a move could reshape the structure of public sector banks by reducing their number but strengthening their size and global reach. For customers, this may mean access to better services, stronger digital platforms, and wider branch networks, though short-term challenges like account migration or branch rationalisation could also arise.
A Look Back: From 27 Banks to 12
India has already witnessed one major wave of bank amalgamation in 2020, when the number of PSBs was reduced from 27 to just 12. That round of mergers created bigger entities such as Punjab National Bank (PNB) absorbing Oriental Bank of Commerce and United Bank, or Union Bank merging with Andhra Bank and Corporation Bank. At that time, the objective was to strengthen balance sheets, improve efficiency, and give Indian banks the scale needed to compete globally.
Right now India has following Public Sector Banks:
- State Bank of India (SBI)
- Punjab National Bank (PNB)
- Bank of Baroda (BoB)
- Canara Bank
- Union Bank of India
- Indian Bank
- Bank of India (BoI)
- Central Bank of India
- Indian Overseas Bank (IOB)
- UCO Bank
- Bank of Maharashtra (BoM)
- Punjab & Sind Bank (PSB)
What’s the need for more Merger?
According to senior officials, the logic for another round of consolidation is simple: Indian banks need to grow much larger if they want to compete on the global stage. At present, only State Bank of India (SBI) and HDFC Bank figure among the world’s top 100 lenders by assets. For a fast-growing economy like India, that number is seen as too low.
The official quoted by ET also stressed that any new mergers will not be imposed unilaterally. They will depend on synergies between banks and will be carried out in consultation with the lenders themselves, just like in 2020. The aim would be to create at least three to four very large banks that can anchor India’s financial system and support big-ticket investments.
Another important reason behind the merger is India’s massive infrastructure requirement. The country will need close to $4.5 trillion in infrastructure investment by 2040 to sustain its growth story. Stronger, bigger banks aligned with specialised financiers like NaBFID (National Bank for Financing Infrastructure and Development) and IIFCL (India Infrastructure Finance Company) will be better positioned to channel funds into mega projects such as highways, power plants, and urban development.
The timing also matters. Recent data shows that domestic credit growth is slowing down. Non-food credit growth in July 2025 was 9.9% year-on-year, down from 13.7% in July 2024. Research by CareEdge Ratings shows that loans to large industries grew by less than 1% in July, pointing to weak demand from corporates and persistently low private capital expenditure.
This raises a crucial question: do we need more banks to expand credit or fewer, bigger banks to lend more effectively?
What to Expect
The upcoming PSB Manthan will likely set the tone for the government’s approach. If fresh amalgamations are announced, it would mark another milestone in reshaping India’s banking sector. For employees, customers, and investors, the news of consolidation always brings mixed reactions. While mergers can improve efficiency and financial strength, they also raise concerns about branch rationalisation, cultural integration, and the loss of smaller bank identities.
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