The Centre is preparing to merge several smaller public sector banks (PSBs) into larger, stronger lenders — a move aimed at streamlining India’s banking sector and boosting operational scale. 

Under the plan, banks such as Indian Overseas Bank (IOB), Central Bank of India (CBI), Bank of India (BOI) and Bank of Maharashtra (BoM) could be merged into larger institutions like State Bank of India (SBI), Punjab National Bank (PNB) or Bank of Baroda (BoB). 

This consolidation push stems from a broader government drive, first initiated in 2019 when the number of PSBs dropped from 27 to 12 through mergers. The current wave is positioned as a “second phase,” envisaging fewer but more robust banking entities by fiscal year 2026-27, with improved balance-sheets, capital strength and enhanced capacity for credit expansion.

Proponents argue that larger banks can offer more efficient services, broaden outreach, absorb risks better, and support large financing needs — a necessity in an economy aiming for rapid growth.

For customers, the outcome could mean more uniform products, greater geographic reach, and possibly better stability. However, challenges remain — from aligning internal operations and culture across merged entities to ensuring smooth transition in services, employee integration, and IT systems.

With official discussions already underway, the next few quarters will reveal whether this consolidation achieves the government’s ambition: a leaner, stronger Indian banking system ready for future growth.