Only Four Banks Soon? Big PSB Shake-Up Plan Stuns India
India’s public banks may shrink to four as the Centre studies a new mega PSB merger plan. Fresh talks hint at major changes in the banking network.
image for illustrative purpose
The discussions within the Union Finance Ministry have brought to the forefront the long-debated topic of the restructuring of India's public sector banking sector, with one of the proposals being considered being the reduction of the number of government banks down to four at the end of financial year 2026-27.
According to sources familiar with the discussions, the government is considering a new consolidation plan that would see the merging of a number of mid-sized banks into big ones. The plan is reminiscent of the 2019 initiative which reduced the number of public sector banks from 27 to 12. With the current discussions, however, the majority of the considerations are towards a total reconfiguration.
The evolving framework is reportedly envisioning one large banking group formed through the merger of State Bank of India, Punjab National Bank, Bank of Baroda, and a combined Canara–Union Bank entity, according to senior officials monitoring the internal talk. In this scenario, the country will, in the end, have four merged PSBs instead of a mixed group of twelve.
The government's evaluation is said to be concentrated on capital buffers, mmanagement quality, and readiness of domestic banks to fight with the global banking giants. Another point being discussed by the officials is whether the creation of banks with the strength to cope with long term credit needs and macro level growth cycles is the sufficient outcome of the merger of the smaller institutions into the larger balance sheets.
One aspect of the proposal being explored is the merger of Indian Bank and UCO Bank into the SBI, PNB, and BoB mix. The Indian Overseas Bank, Bank of India, and Bank of Maharashtra are all being considered for consolidation with bigger platforms. Still, the discussions regarding Punjab & Sind Bank are ongoing without a final decision being made.
Should the restructuring draft get the green light from the Ministry of Finance, the proposition would be brought before the Cabinet and subsequently the Prime Minister’s Office for the larger approval. Steps involving regulation, such as those concerning SEBI, will be checked for the purpose of ensuring that the financial markets are not disturbed.
The topic of massive mergers among public sector banks has been raised several times over the past few years, with the Finance Minister Nirmala Sitharaman always indicating that India must have banks big enough to play at the world stage. According to the officials, the ongoing scrutiny is in line with that larger aim, although the ultimate decision will be made by the internal evaluators.
