Modi government might merge 12 public sector banks into 4
What's the story
The Indian government is working on a major consolidation plan for public sector banks (PSBs). The proposal, which is being drafted by the Finance Ministry, aims to reduce the number of state-owned lenders from 12 to just four by FY27. The four banks likely to remain are State Bank of India (SBI), Punjab National Bank (PNB), Bank of Baroda (BoB), and a merged Canara-Union Bank entity.
Plan details
Merger strategy to enhance operational efficiency
The proposed merger strategy involves smaller banks merging with larger ones, and then further consolidating into large entities. This is aimed at strengthening balance sheets, improving operational efficiency, and creating globally competitive banking institutions. The government hopes this restructuring will prepare the banking sector for an increase in credit demand as India aims for sustained high growth.
Potential mergers
Indian Bank and UCO Bank being considered for integration
The government is considering a merger between Canara Bank and Union Bank of India. This consolidation could form one of the four remaining entities. Indian Bank and UCO Bank are also being considered for integration, potentially creating another large bank that would join SBI, PNB, and BoB as core lenders.
Absorption plans
Other mid-sized banks to be absorbed
Other mid-sized banks such as Indian Overseas Bank (IOB), Central Bank of India (CBI), Bank of India (BoI), and Bank of Maharashtra (BoM) are likely to be absorbed by SBI, PNB, or BoB. However, a decision on Punjab & Sind Bank is yet to be taken. The final decision will depend on the final contours of the merger plan.
Approval procedure
Consolidation plan to undergo multi-layered approval process
The consolidation plan will first be presented to the Finance Minister for approval. If approved, it will go through a multi-layered vetting process involving senior officials at the Cabinet Secretariat, Prime Minister's Office (PMO), as well as regulatory comments from the Securities and Exchange Board of India (SEBI). The government believes this round of merger will be smoother because "larger banks now have better governance structures, stronger balance sheets and more mature integration systems."