Get Ready for Bank Merger! Govt may soon start Process of Merger of PSU Banks

The process of merging public sector banks (PSBs) may start soon. As per reports, the process may start by the end of this financial year.

First Phase: Merger of Smaller Banks

In the first phase, 3–4 smaller PSBs may be merged with larger banks. The objective is to strengthen small banks that currently face challenges in large-scale lending, efficiency, and risk management.

Banks such as Punjab & Sind Bank, UCO Bank, and Bank of Maharashtra are being considered for this phase of mergers.

Second Phase: Mergers Among Larger Entities

In the next phase, some of the newly merged banks could be combined further among themselves. This would help in forming a few large, globally competitive banks capable of handling major financial operations.

Goal: Two Indian Banks Among Top 20 in the World

The government and the finance ministry are working on a plan to have two PSBs large enough to feature among the top 20 global banks. This goal aligns with India’s growing role in the global economy and the country’s Viksit Bharat Vision 2047, which aims to create leading players in key sectors, including banking.

In Line with Public Sector Policy

The consolidation plan follows the Public Sector Enterprises (PSE) Policy of 2021, which focuses on reducing government presence in strategic sectors such as banking and ecouraging efficiency and competitiveness among public sector institutions

Background: Past Bank Mergers

In 2017, the merger of five associate banks of State Bank of India (SBI) was a major milestone, marking the beginning of large-scale consolidation. In 2019–2020, 13 PSBs were merged into five, reducing the total number of PSBs from 27 (in 2017) to 12.

These mergers helped strengthen the banking sector. Today, SBI ranks 43rd globally in terms of assets, and HDFC Bank is also among the top 100 global banks. In comparison, China already has multiple banks in the top 10. The top 4 largest banks in the World are from China – Industrial and Commercial Bank of China, Agricultural Bank of China, China Construction Bank Corp, Bank of China.

Benefits of the New Mergers

The upcoming mergers aim to:

• Create stronger banks capable of larger loans and better risk management
• Enhance financial stability and efficiency
• Improve resource mobilisation and competitiveness
• Support India’s growth as it moves toward becoming the third-largest economy by 2027–28
• Promote financial inclusion through wider reach and better customer service