PSU Bank Merger: Govt Initiates Discussions With RBI & PSBs; More Mega Lenders Likely In 2026

PSU Bank Merger: Govt Initiates Discussions With RBI & PSBs; More Mega Lenders Likely In 2026 Mega Bank Merger Plan: Finance Minister Nirmala Sitharaman has said India needs "many big, world-class banks" and indicated that preparatory work has begun. Mega Bank Merger Plan: The government has set the stage for the next phase of consolidation in public sector banks (PSBs), with discussions already underway with the Reserve Bank of India and state-owned lenders. The objective is clear: Create more large, globally competitive banks to support India’s growth ambitions under the Viksit Bharat 2047 vision. Last month, Finance Minister Nirmala Sitharaman said India needs “many big, world-class banks" and indicated that preparatory work has begun, dropping enough hints about consolidation in the public sector space. Recommended Stories Why consolidation is back on the agenda India currently has 12 public sector banks, but only State Bank of India features among the world’s top 50 banks by assets, ranking 43rd globally. Among private lenders, HDFC Bank stands at 73rd. Policymakers believe scale matters - for capital strength, global competitiveness, and financing large infrastructure and growth projects. A brief history of PSU bank mergers The government has already demonstrated its preference for consolidation through two major exercises: 2019-20 mega-merger: Announced in August 2019 and effective April 1, 2020, this reduced PSBs to 12 from 27 in 2017. United Bank of India and Oriental Bank of Commerce merged with Punjab National Bank Syndicate Bank merged with Canara Bank Allahabad Bank merged with Indian Bank Andhra Bank and Corporation Bank merged with Union Bank of India 2019: Dena Bank and Vijaya Bank were merged with Bank of Baroda. Earlier, in April 2017, five associate banks of SBI and Bharatiya Mahila Bank were merged with SBI, significantly expanding the lender’s footprint. SBI’s consolidation journey began even earlier, with the State Bank of Saurashtra merging in 2008 and the State Bank of Indore in 2010. The 2017 merger lifted SBI’s asset base to Rs 44 lakh crore, with around 22,500 branches and 58,000 ATMs. Stake sale push continues alongside consolidation Parallel to consolidation, the government is also moving ahead with strategic stake sale. The sale of IDBI Bank remains on track, with DIPAM Secretary Arunish Chawla expressing confidence that the transaction will be completed by March 2026. In January 2019, the government had sold its 51 per cent controlling stake in IDBI Bank to Life Insurance Corporation of India as part of the privatisation roadmap. PSU banks’ profitability strengthens the case Improved financial performance has added momentum to the consolidation debate. The 12 PSBs, together accounting for about 60 percent of total banking business, reported a combined net profit of Rs 93,675 crore in the first half of FY26, up 10 per cent from Rs 85,520 crore a year earlier. At the current pace, PSU bank profits are expected to cross Rs 2 lakh crore for FY26. In FY25, state-owned lenders had already posted a record Rs 1.78 lakh crore profit, a 26 per cent jump over FY24’s...

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