The government is readying a fresh round of major mergers among public sector banks (PSBs). According to sources cited by Moneycontrol, discussions are underway to merge Indian Overseas Bank (IOB), Central Bank of India (CBI), Bank of India (BOI), and Bank of Maharashtra (BOM) into larger PSBs such as Punjab National Bank (PNB), Bank of Baroda (BoB), and State Bank of India (SBI). The objective is to create stronger institutions capable of supporting wider credit expansion and global competitiveness.

Key Details of the Merger Plan

• The mergers are designed to consolidate smaller PSBs under larger, well-capitalized banks, echoing the strategy implemented between 2017–2020 that reduced the number of PSBs from 27 to 12.

• The anticipated mergers will involve:

  • IOB, CBI, BOI, and BOM potentially merging into PNB, BoB, or SBI.

• The proposal will be reviewed by senior cabinet officials before being sent to the Prime Minister’s Office for final approval.

• The government is focused on building internal consensus, with the financial year 2026–27 (FY27) set as a tentative timeline for finalizing the roadmap and obtaining necessary approvals.

Why the Merger?

This consolidation drive follows NITI Aayog recommendations, which advised the government to either privatize or merge smaller PSBs, retaining only a few large state-owned banks with a global profile. The rationale includes:

• Creating stronger banks with robust balance sheets.

• Improving operational efficiency and reducing redundancy in branch networks.

• Ensuring public sector banks remain competitive, particularly amid digital banking growth and evolving fintech ecosystems.

This upcoming move is being positioned as a crucial step to make Indian PSBs more globally competitive, leaner, and strategically placed for future challenges in the banking sector.