The Indian government is advancing plans for another wave of consolidation in the public sector banking (PSB) sector, reported Moneycontrol, citing government sources.
According to these sources, the initiative aims to merge smaller state-owned banks with larger ones, creating financial institutions capable of supporting broader economic growth and reform.
Go deeper with GlobalData
Access deeper industry intelligence
Experience unmatched clarity with a single platform that combines unique data, AI, and human expertise.
Under the proposed scheme, banks such as Indian Overseas Bank (IOB), Bank of India (BOI), Bank of Maharashtra (BOM), and Central Bank of India (CBI) may be integrated with larger banks, including Punjab National Bank (PNB), State Bank of India (SBI), and Bank of Baroda (BoB).
These mergers are part of a strategic effort to reduce the number of PSBs. The discussions regarding this consolidation are projected to extend into fiscal year (FY) 2027, with the intention of finalising a merger roadmap within that period, the report said.
The timeline is designed to allow for thorough consultations with the banks that could be involved in the mergers.
Despite attempts to obtain a comment from the finance ministry, no response was provided at the time of reporting, stated Moneycontrol.
US Tariffs are shifting - will you react or anticipate?
Don’t let policy changes catch you off guard. Stay proactive with real-time data and expert analysis.
By GlobalDataThis initiative follows a series of previous consolidations that took place between 2017 and 2020, during which the government reduced the number of state-owned banks from 27 to 12 by merging 10 PSBs into four larger banks. The aim was to create more capable banks with the potential for global competition.
The current consolidation efforts are in line with recommendations from NITI Aayog, the government’s policy think tank, which has advised either the privatisation or restructuring of smaller PSBs, including CBI and IOB.
NITI Aayog’s stance is to maintain a select few huge state-run banks, such as PNB, BoB, Canara Bank, and SBI, while considering privatisation or mergers for the rest, or reducing the government’s stake in them.
The consolidation proposals are slated for inter-ministerial discussions in FY27 and are expected to reach the cabinet and the Prime Minister’s office for deliberation within the same fiscal year.
A source said: “The current plan builds on those recommendations but adapts them to present conditions. With fintech expanding rapidly and private banks growing in scale, the idea is to position PSBs strategically rather than spread them thin.”
