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Informist, Saturday, Nov. 15, 2025

 

--Fin min source: Govt may announce PSU bank merger roadmap in Apr-May

--Fin min source: May consolidate PSU banks in 2-3 tranches across years

--Fin min source: Will see 2 quarter results before deciding on bank mergers

 

By Priyasmita Dutta

 

NEW DELHI – The finance ministry is working on a roadmap for the next round of mergers of public sector banks and an announcement is likely in Apr-May, a senior finance ministry official told Informist. While the plan is yet to be finalised, the mergers will be done in 2-3 tranches and not in one go, the official said.

 

"Currently, there are 12 PSU banks, the agenda is to have maximum 6-7 nationalised banks, but bigger in scale than in the current form," the official said. "Government may merge 1-2 smaller banks first and then merge it with SBI or PNB, or may directly merge them with SBI or PNB," the official added.

 

According to the official, the government will analyse banks' performance for two more quarters before taking a final call on the banks that will be merged. In the September quarter, the 12 PSU banks collectively reported a net profit of INR 495 billion, up 12% on year. The next phase of the PSU bank consolidation, which will likely begin in FY27, will stretch over multiple financial years, the official said.

 

The government's move to merge some of the PSU banks with larger ones comes after it failed to privatise two PSU banks as Finance Minister Nirmala Sitharaman had announced in the Budget for 2021-22 (Apr-Mar). The proposed privatisation of IDBI Bank, which was expected to prepare the roadmap for privatisation of PSU banks, has been delayed due to various reasons, including the fit-and-proper check undertaken by the Reserve Bank of India.

 

The government's plan to merge the PSU banks into fewer larger ones is also based on a desire to benefit from the improved profitability of public sector banks over the last three years. State-owned banks, which earlier needed capital support from the government, are now out of the woods. Between FY17 and FY22, the government had infused over INR 3 trillion into public sector banks. The last such round of capital infusion was in FY22, when the government provided INR 46 billion to Punjab & Sind Bank.

 

The Narendra Modi government has carried out large-scale PSU bank mergers in recent years. Not long after kickstarting its second term, the government announced a mega merger of 10 public sector banks. Effective Apr. 1, 2020, Oriental Bank of Commerce and United Bank of India were merged into PNB, Andhra Bank and Corporation Bank were merged into Union Bank of India, Syndicate Bank was merged with Canara Bank, and Allahabad Bank was merged into Indian Bank. This left only 12 public sector banks, down from 20 earlier.

 

Prior to this, five associate banks of SBI--State Bank of Bikaner and Jaipur, State Bank of Mysore, State Bank of Travancore, State Bank of Hyderabad, and State Bank of Patiala were merged with State Bank of India in 2017, along with Bharatiya Mahila Bank. Before that, State Bank of Indore was merged with the SBI in 2010 and State Bank of Saurashtra had been merged with SBI in 2008.

 

The smaller PSU banks that will most likely be merged into larger PSU banks are Bank of Baroda, Bank of India, Central Bank of India, Indian Overseas bank, Bank of Maharashtra, UCO Bank, and Punjab & Sind Bank.

 

India's largest lender SBI had deposits of INR 55.92 trillion and advances of INR 43.62 trillion at the end of September. Its profit for Jul-Sept was INR 201.60 billion. HDFC Bank is the second largest bank in the country after SBI in terms of deposits. HDFC Bank's deposits were INR 28.02 trillion at the end of September and advances were INR 27.46 trillion. Its net profit for the September quarter was INR 186.41 billion.

 

Punjab National Bank is the third largest in the country and had deposits of INR 16.17 trillion and advances of INR 11.34 trillion at the end of September. It had reported a net profit of INR 49.04 billion for the September quarter. ICICI Bank is the fourth largest bank in the country with deposits of INR 16.13 trillion and advances of INR 14.08 trillion at the end of September. It had reported a net profit of INR 123.59 billion for the September quarter.

 

The government's desire for globally competitive, large banks is not just about their size, but on several other metrics such as capital adequacy, market capitalisation, return on assets, among others. According to S&P Global Market Intelligence, SBI is the 43rd largest banks by assets in the world. Private sector lender HDFC Bank is the second Indian bank in the global top 100 largest banks, at 73rd place.

 

Informist had reported in May 2024 that the government was exploring the option of merging PSU banks, as this would also help banks meet the Securities and Exchange Board of India's minimum public shareholding norm. SEBI rules require all listed companies to have a minimum public float of 25% and currently, five of the 12 public sector banks do not comply with the minimum public shareholding norms. These include Bank of Maharashtra with a public shareholding of 20.4%, Central Bank of India with 10.7%, UCO Bank with 9.1%, Punjab & Sind Bank with 6.2%, and Indian Overseas Bank with 5.4%. In April last year, the finance ministry had asked these banks to increase their minimum public shareholding to 25% by Aug 1. 2026.

 

In case a small public sector bank with a low public float is merged with a large PSU bank with a larger public float, then the merged bank's public shareholding will easily meet the 25% public float norm.

 

According to another official, beyond shareholding, while deciding on the mergers, the government will also consider synergy in the core banking software banks use. Currently, Indian banks use three software for their banking operations--Infosys' Finacle, Tata Consultancy Services' BaNCS, and Oracle's Flexcube. 

 

As per publicly available information, most PSU banks use Finacle. These are Bank of Baroda, Indian Overseas Bank, Punjab National Bank, Union Bank of India, Bank of India, Punjab & Sind Bank, and UCO Bank. Four banks use BaNCS--State Bank of India, Indian Bank, Bank of Maharashtra, and Central Bank of India. Among PSU banks, only Canara Bank uses Flexcube. 

 

"If two banks have same software, it will help in streamlining operations better," the official said.  End

 

Edited by Akul Nishant Akhoury

 

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