Mega Bank Merger Ahead? 4 PSU Banks Likely to Disappear After Consolidation

Government plans to reduce public banks to fewer, stronger lenders by FY 2027.

The government is preparing another big shake-up in the public banking sector. A proposal under review could see four state-run banks merged with larger lenders as part of a plan to build a leaner and stronger network by the 2026–27 financial year.

Until recently, nearly every city corner had a public bank board displaying familiar names. In a few years, some of those names might quietly disappear from India’s streets.

Recent Buzz Around PSU Bank Mergers

In September 2025, a Moneycontrol report revealed that the Central Government is preparing to merge four mid-size public sector banks by FY 2027. The banks are Indian Overseas Bank (IOB), Central Bank of India (CBI), Bank of India (BOI), and Bank of Maharashtra (BoM). These banks may soon become part of larger ones like State Bank of India (SBI), Punjab National Bank (PNB), or Bank of Baroda (BoB).

The idea is simple. Fewer banks with stronger financials and better management. During a recent RBI review meeting, Sanjay Malhotra, the RBI Governor, said, “Growth outlook is softer and below expectations.” His remarks signal the need for public sector reforms, including banking.

A proposal from the Department of Financial Services (DFS) has already reached the early discussion stage. According to officials quoted in Outlook Business, Cabinet-level review is likely before March 2026.

Let’s look at the possible merger combinations.
 

These combinations are not confirmed by any government circular. But internal talks indicate they are part of a larger consolidation plan under the government’s Viksit Bharat 2047 strategy.

Why The Government Backs Bank Mergers

A bank merger means that two or more banks combine into one. The goal is to create a bigger bank with more customers, better services, and improved cash flow. In India's case, the government has used bank mergers to reduce the number of weak lenders that depend heavily on taxpayer money.

A look at earlier mergers shows how this works.
 

The 2020 mega merger reduced the number of PSU banks from 27 to 12. That round involved big players like Oriental Bank of Commerce, Syndicate Bank, and Allahabad Bank. The plan this time focuses on four mid-size lenders.

This government-led move aims to streamline banking operations. With fewer public sector banks, it becomes easier to monitor credit, reduce NPAs, and upgrade banking technology across branches.

How This Connects To Previous Bank Stories

This is not the first time Indian public banks are being restructured. The 2020 PSU merger was the largest so far. It was covered under “India’s Largest PSB Merger Completed Ahead of Schedule”. That merger helped Punjab National Bank reach a business size of ₹17.94 lakh crore.

Let’s revisit what happened then.
 

The Ministry of Finance had called this merger wave a success. The same approach is now being applied again, but this time the goal is to strengthen regional public banks and reduce costs in back-end operations.

As LoansJagat explained in “Muted Loan Growth for Most Banks in June Quarter”, many lenders are still facing challenges in expanding credit even after structural reforms. This shows why careful management and stronger balance sheets remain key to future growth.

Will These Mergers Change the Future of Banking in India?

The impact of mega bank merger will not be felt only by the banks. Customers, employees, and even local businesses will be affected. If done well, the merger will bring better services, more ATM access, and faster loan approvals. But if done poorly, it could lead to confusion and delayed services.

A report from Livemint in August 2025 said the government wants at least two Indian banks in the global top 20 by 2047. The current mergers are steps toward that goal.

Here's how the structure might change:
 

Public banks have faced many issues in the past, including rising NPAs and lack of modern banking tools. With this merger, the future of Indian banking sector could include faster digitisation, lower default rates, and broader financial inclusion.

How The Government And Banks Reacted In Past Mergers

The government approach in 2020 was top-down. Banks were informed about merger timelines, and compliance was expected. Internal restructuring teams were formed and legal clearances were done within months.

Bank unions raised concerns about staff relocation and workload, but no major strikes followed. In the past, mergers were announced publicly with official press notes and Cabinet approvals.

Let’s see how previous responses shaped outcomes:
 

So far, the approach in 2025 is quieter. No official statement has been issued by DFS. But internal sources and banking circles believe that the plan will roll out before the 2026 Budget session.

Conclusion

The government’s proposal to merge IOB, CBI, BOI, and BoM shows its focus on improving public sector banking. Though this move is yet to be confirmed, the push for fewer and stronger banks fits well with the Indian government's bank consolidation roadmap.

If approved, the list of merging public banks will bring major changes to how banks operate in both urban and rural India. Customers may see new branding, changes in account numbers, or even branch consolidations.

The public sector bank merger news is not just about four banks. It signals a larger shift toward modern, efficient banking in India. The coming months will reveal how these changes unfold.

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