Plans underway to create banks even larger than SBI! Here is the plan for public sector banks..

Until a decade ago, India's public sector banks (PSBs) were weighed down by massive debt and losses. However, the picture has changed completely now. These banks stand on solid ground, characterized by steadily improving balance sheets, declining bad loans (NPAs), and impressive profits. The question now arises: is it time to merge select banks to create a few truly massive, global-scale banking institutions? A new report by the Prime Minister's Economic Advisory Council (EAC-PM) makes precisely this recommendation.

**The Need for Large Banks**

India is currently making substantial investments in infrastructure, manufacturing, renewable energy, and technology. Financing these mega-projects requires banks with a high capacity for risk-taking. In a global comparison, India's largest bank, SBI, ranks 43rd. Data from last year shows SBI held assets worth approximately $846 billion, whereas the world's tenth-largest bank possessed assets exceeding $2.6 trillion. Even if all 12 of India's public sector banks were merged, they still would not be able to compete with the world's top institutions.

Bank mergers are not a new phenomenon; between 2017 and 2020, the number of public sector banks was reduced from 27 to 12. However, the objective back then was to rescue weaker banks, whereas the goal this time is different. The EAC-PM report notes that simply increasing a bank's size does not guarantee success. Data projected for the 2026 fiscal year indicates that only seven banks are deemed fully efficient in terms of scale. Large-scale mergers entail significant challenges regarding the integration of technology, workforce structures, and corporate cultures. Governance is another critical issue; if a bank grows in size but suffers from weak management, it could pose a new risk to the economy.

**Finance Minister Has Also Recommended Creating Large Banks**
Last year, at an SBI banking conclave in Mumbai, Finance Minister Nirmala Sitharaman stated that the country now needs strong, large public sector banks. Continuous discussions regarding this are underway among the government, the Reserve Bank of India (RBI), and public sector banks. Before advancing this plan, the government intends to hold consultations with all the banks. The Finance Minister clarified that discussions would be held to assess the banks' readiness for this transition and to understand how they wish to implement it. She explicitly stated that significant technical groundwork remains to be completed before this major decision can be executed on the ground.

**Will Only Four Large Public Sector Banks Remain?**
Towards the end of 2025, widespread reports were indicating that the government was planning a major overhaul of the banking sector. Preparations are being made for a 'mega-merger' of public sector banks. The plan is to complete this process within the current financial year (2026-27). According to NITI Aayog's recommendations, only four large public sector banks will remain in the country in the future. Under this ambitious plan, Indian Overseas Bank, Central Bank of India, Bank of India, and Bank of Maharashtra would be merged into larger banks.

These banks are slated to be merged with banking giants such as SBI, Punjab National Bank (PNB), and Bank of Baroda. Why is the government doing this? The objective is to reduce the rising operational costs and the burden of bad loans (NPAs) faced by smaller banks. The government aims to strengthen the banks' balance sheets so that Indian banks can compete directly with major global banks. Once the merger process is fully implemented, primarily only four public sector banks will be operational in the country: SBI, PNB, Bank of Baroda, and Canara Bank.

**Is There a Concrete Merger Plan?**
Although the EAC-PM has advocated for the creation of massive banks, this remains merely a strategic suggestion at present. There is currently no official proposal from the government regarding the merger of these banks. It was clarified in the Lok Sabha just a few months ago that no such proposal is currently under consideration. Nevertheless, this debate cannot be ignored. Public sector banks have consistently delivered impressive performances. As of December 2025, their share in total bank credit has reached 54.4%. Against this backdrop, options such as raising the foreign capital investment limit from 20% to 49% are being discussed.

There are currently 12 public sector banks in the country.
India previously had 27 public sector banks; however, the government merged them to strengthen their financial position, leaving only 12 such banks in the country today. This massive consolidation process began on April 1, 2017, when SBI merged with its five associate banks and Bharatiya Mahila Bank. Subsequently, on April 1, 2019, Vijaya Bank and Dena Bank were merged into Bank of Baroda.

The most significant transformation occurred on April 1, 2020, when the government consolidated 10 major banks into four large entities: Oriental Bank of Commerce and United Bank were merged into Punjab National Bank; Syndicate Bank was merged into Canara Bank; Andhra Bank and Corporation Bank were merged into Union Bank; and Allahabad Bank was merged into Indian Bank. Meanwhile, six other banks—such as Bank of India and Central Bank—continue to operate independently without having undergone any merger.

Disclaimer: This content has been sourced and edited from TV9. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.