Modi government plans to merge smaller lenders with big banks
What's the story
The Indian government is planning a major merger in the public sector banking (PSB) space. The proposed merger would see smaller lenders being clubbed with larger ones, Moneycontrol reported citing government sources. The move is aimed at simplifying the PSB landscape and creating fewer but stronger entities capable of supporting credit growth and financial sector reforms.
Merger details
Proposed merger could involve these banks
The proposed merger could see banks like Indian Overseas Bank (IOB), Central Bank of India (CBI), Bank of India (BOI), and Bank of Maharashtra (BOM) being merged with larger lenders such as Punjab National Bank (PNB), Bank of Baroda (BoB), and State Bank of India (SBI). The plan is still in its early stages, with senior officials at the Cabinet level set to discuss it further.
Future plans
Roadmap for merger expected to be ready by FY27
The discussions on this merger plan are expected to continue in FY27, with an aim to finalize the roadmap within that year. This timeline is indicative and will allow for consultations with the banks involved. The government wants to build internal consensus before making any formal announcements about these merger proposals as part of its medium-term banking sector reform strategy.
Past consolidations
Previous round of bank mergers and NITI Aayog's recommendations
Between 2017 and 2020, the government had merged 10 PSBs into four larger entities. This reduced the number of state-owned banks from 27 to 12. The consolidation aimed at creating stronger, better-capitalized banks capable of competing globally. The renewed merger push also comes in light of NITI Aayog's recommendations to privatize or restructure smaller PSBs like IOB and CBI, which are on the list for strategic sale.