Modi government plans to merge Union Bank, Bank of India
What's the story
The Indian government is contemplating a merger between two major public sector banks (PSBs), Union Bank of India and Bank of India. The proposed merger is part of the government's larger banking sector reforms strategy. If it goes through, the new entity will be India's second-largest state-run bank after the State Bank of India (SBI). Currently, Bank of Baroda ranks as the second-largest PSB with total assets worth ₹18.62 lakh crore as of June 30.
Potential impact
Proposed merger to create banking giant
The merger of Union Bank and Bank of India would create a banking giant with assets worth ₹25.67 lakh crore, nearly matching ICICI Bank's ₹26.42 lakh crore. This move is part of the Centre's plan to scale up lenders and streamline overlapping operations in the banking sector over the next few years. The Finance Ministry is also considering merging Indian Overseas Bank and Indian Bank as part of this strategy.
Future plans
Privatization of smaller PSBs under consideration
The government is considering the privatization of smaller PSBs such as Punjab & Sind Bank and Bank of Maharashtra. These lenders are ranked lower by assets among the public sector lenders. The discussions are part of a decades-long process of banking reforms in India that began in 1991. The latest milestone was the amalgamation of associate banks into SBI in 2017, signaling more such deals to come.
Strategy
Focus on operational efficiency in consolidation process
The government is focused on strengthening PSBs through scale and efficiency, not just size. It is stressing optimization of operations and synergies in any consolidation exercise. Internal teams in the Department of Financial Services have been asked to conduct due diligence and prepare a cost-benefit analysis for each scenario in this process. An external agency may be roped in once the banks under this exercise are finalized.
Financial health
State-run banks' performance in recent years
The move comes as state-run banks have performed well in the last few years. Between FY22-23 and FY24-25, public sector banks' total business increased from ₹203 lakh crore to ₹251 lakh crore. Their net NPAs plunged from 1.24% to 0.52%, net profit rose from ₹1.04 lakh crore to ₹1.78 lakh crore, and dividend payouts jumped from ₹20,964 crore to ₹34,990 crore during this period.