PSU Banks Merger Plan: Which Banks will be merged? Know Details!!

India’s banking sector may soon see another big wave of mergers among public sector banks (PSBs). According to sources, the government is working on a mega merger plan that could combine smaller banks with larger ones to create fewer but stronger institutions. The aim is to strengthen the banking system, make it more efficient, and support the next phase of credit growth and financial reforms.

Possible Banks in the Merger Plan

As per sources, the government is considering merging Indian Overseas Bank (IOB), Central Bank of India (CBI), Bank of India (BOI), and Bank of Maharashtra (BoM) with larger banks such as Punjab National Bank (PNB), Bank of Baroda (BoB), and State Bank of India (SBI).

A formal record of discussion — an internal government note that outlines key points of a proposal — will first be reviewed by senior officials at the Cabinet level, and then examined by the Prime Minister’s Office (PMO). The consultations and approvals are expected to continue through FY27, with a roadmap likely to be finalised in the same year. The government wants to build consensus internally before making any formal announcement.

Background: PSB Consolidation So Far

This move marks a revival of the government’s bank consolidation drive, which aims to reform and strengthen public sector banks. Between 2017 and 2020, the government merged 10 public sector banks into 4 larger entities, reducing the total number of PSBs from 27 to 12.

During that phase Oriental Bank of Commerce and United Bank of India were merged with PNB and Syndicate Bank was merged with Canara Bank. These mergers were designed to create stronger, better-capitalised banks that could compete globally and support large-scale lending.

Merger vs. Privatisation

The latest merger proposal also follows NITI Aayog’s recommendation to restructure or privatise sm aller PSBs such as IOB and CBI.The government’s think tank had earlier suggested keeping only a few large state-run banks — SBI, PNB, BoB, and Canara Bank — while merging or reducing the government’s stake in the rest. The current plan builds on those earlier recommendations but aligns them with today’s conditions. With fintech and private banks growing rapidly, the idea is to position public sector banks strategically instead of spreading them too thin.

What’s Next?

The proposal will be discussed in inter-ministerial meetings before being presented to the Cabinet and PMO. If approved, it could mark the start of a new era for India’s banking system — one focused on size, strength, and smarter growth.