New Delhi | Dec 1,2025 | SKY LINK TIMES
12 State Banks to Shrink to 4 by FY27:
The Central Govt plans mega PSB merger.Public-sector bank (PSB) consolidation plan that could reduce the number of state-owned banks from 12 to just four by Financial Year 2027, according to a senior official with knowledge of the proposal. The move aims to build stronger balance sheets, improve efficiency and create banking entities capable of competing at the global level.
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Canara–Union Bank Merger Expected to Lead Next Consolidation Wave
As per the official, the Finance Ministry is moving forward with a plan to merge Canara Bank and Union Bank of India, forming one of the four large banks expected to remain after restructuring. Indian Bank and UCO Bank are also being considered for integration into the same structure, creating a major consolidated institution alongside State Bank of India (SBI), Punjab National Bank (PNB), and Bank of Baroda (BoB).
Smaller and mid-sized PSBs — Indian Overseas Bank (IOB), Central Bank of India (CBI), Bank of India (BoI) and Bank of Maharashtra (BoM) — are expected to be absorbed by larger lenders such as SBI, PNB, or BoB. A final decision on Punjab & Sind Bank is still pending.
Approval Path: Multi-Layer Review Underway
The consolidation blueprint will first be placed before the Finance Minister for initial approval. Once cleared, it will move through multiple review stages, involving:
Cabinet Secretariat
Prime Minister’s Office (PMO)
Market regulatory inputs from Securities and Exchange Board of India (SEBI)
“A record of discussion will be prepared and escalated in phases. SEBI’s observations will also be sought, given the market implications,” the source stated.
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Why the Government is Pushing PSB Consolidation
Officials believe larger banks are crucial to support India’s long-term economic growth and rising credit requirements — particularly for:
Infrastructure funding
Corporate lending
Digital banking expansion
The government expects consolidation to reduce overlapping branch networks, improve capital utilisation and enhance governance standards. The official noted that integration challenges are expected to be lower than before because PSBs now have stronger financials and better technology system.
Second Major PSB Restructuring After 2017–2020
The move marks Phase II of India’s bank consolidation strategy. Between 2017 and 2020, the number of PSBs was brought down from 27 to 12, through major mergers such as SBI-associate banks and BoB-Dena-Vijaya mergers.
If approved and implemented, the FY27 roadmap would reshape India’s banking landscape and strengthen the public sector banking framework for global competition.
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