Mega PSU Bank Merger: Govt May Merge Smaller Banks Like IOB, CBI, BOI with Bigger Lenders Including SBI, PNB

The Indian government is reportedly preparing another major consolidation push in the public banking sector, with plans to merge smaller lenders such as Indian Overseas Bank (IOB), Central Bank of India (CBI), Bank of India (BOI) and Bank of Maharashtra (BOM) into larger state-run banks. According to a Moneycontrol report, this "mega merger" initiative is seen as crucial for catalysing the next phase of credit expansion and accelerating financial sector reforms.

Mega PSU Bank Merger: IOB, CBI, BOI, BOM May Combine with PNB, BoB and SBI

Under the proposed scheme, these smaller PSBs may be merged with anchor banks like Punjab National Bank (PNB), Bank of Baroda (BoB) and State Bank of India (SBI). The roadmap for this merger is expected to be first evaluated at the Cabinet level and then forwarded to the Prime Minister's Office for approval.

NITI Aayog Model: Only SBI, PNB, BoB & Canara to Remain Fully Govt‑Controlled

This renewed consolidation effort marks a departure from NITI Aayog's earlier stance, which recommended that smaller public sector banks like IOB and CBI be either privatised or restructured. Under that model, only a few large state-run lenders-namely SBI, PNB, BoB and Canara Bank-would remain fully government-controlled, while others would be candidates for strategic sale or equity dilution.

"With fintechs growing rapidly and private banks expanding their reach, the focus now is to strengthen PSBs strategically rather than keep them scattered," the Moneycontrol report noted.

This is not the government's first attempt at restructuring public sector banks. In 2020, it had approved the consolidation of ten PSBs into four major entities, aimed at creating digitally driven and globally competitive banks with stronger synergies.

The mergers included:

• Amalgamation of Oriental Bank of Commerce and United Bank of India into Punjab National Bank
• Amalgamation of Syndicate Bank into Canara Bank
• Amalgamation of Andhra Bank and Corporation Bank into Union Bank of India
• Amalgamation of Allahabad Bank into Indian Bank

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