The Indian banking sector is set for another major change. Some public sector banks (PSBs) are likely to merge soon. According to a report by Moneycontrol, the central government is planning to merge smaller public sector banks with larger banks. The move is aimed at creating stronger banks that can support the country’s next phase of credit growth and financial reforms.
Banks to be merged
The proposed merger involves the following small banks:
– Indian Overseas Bank (IOB)
– Central Bank of India (CBI)
– Bank of India (BOI)
– Bank of Maharashtra (BoM)
These will be merged:
– Punjab National Bank (PNB)
– Bank of Baroda (BoB)
– State Bank of India (SBI)
The “Record of Discussion”, an internal government document detailing the merger plan, will first be reviewed by senior cabinet-level officials and then by the Prime Minister’s Office (PMO). Discussions and consultations are likely to take place in FY27, with the aim of finalising the roadmap by that year. The finance ministry is yet to comment on the proposal.
Public Sector Bank Consolidation Drive
The decision is part of the government’s ongoing efforts to strengthen public sector banks. Between 2017 and 2020, the central government merged 10 public sector banks into four larger banks. This brought down the total number of public sector banks from 27 in 2017 to 12.
For example, Oriental Bank of Commerce and United Bank of India merged with Punjab National Bank. Similarly, Syndicate Bank merged with Canara Bank. SBI merged its five associate banks and Bharatiya Mahila Bank. Associate banks include State Bank of Bikaner and Jaipur, State Bank of Travancore, State Bank of Mysore, State Bank of Patiala and State Bank of Hyderabad.
Why is the government still trying to merge?
According to reports, NITI Aayog has suggested that only a few large public sector banks, such as SBI, PNB, Bank of Baroda, and Canara Bank, be retained. The remaining banks have been suggested for merger or privatization. As part of this, it has been decided to merge smaller public sector banks, such as Indian Overseas Bank and Central Bank of India, into new banks.
Experts believe that this plan is appropriate for today’s circumstances. Because FinTech and private banks are expanding rapidly. To compete with them, public banks need to be very strong. The government believes that large, well-capitalized banks will be efficient and will also be more competitive internationally.
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