The next round of public sector bank (PSU) consolidation may soon take shape, with six state-run lenders reportedly being evaluated for mergers. According to multiple industry sources, Indian Overseas Bank (IOB), Central Bank of India, UCO Bank, Bank of India, Bank of Maharashtra, and Punjab & Sind Bank are currently on the radar for restructuring in the upcoming phase of reforms.
If the proposal moves forward, these banks could be merged with larger PSU lenders such as State Bank of India (SBI), Punjab National Bank (PNB), Bank of Baroda (BoB), Canara Bank, or Union Bank of India, strengthening the overall balance sheet and improving competitiveness.
Why Next PSU Bank Merger Is Being Considered
A previous NITI Aayog report recommended that India retain a smaller group of strong and scalable state-run banks — including PNB, Bank of Baroda, Canara Bank and SBI — while smaller banks are either privatised, merged, or see a reduction in government shareholding.
The proposal aligns with evolving market conditions. With fintech expansion and private banks increasing their footprint, sources say the objective is to position PSU banks strategically rather than spreading resources too thin.
The consolidation phase is expected to be discussed between now and FY27, and the Union Budget 2026 will be closely watched for announcements.
Possible Merger Combinations (As Reported)
| PSU Bank | Potential Merging / Acquiring Bank | Reasons |
|---|---|---|
| Indian Overseas Bank | SBI or PNB | Scale, stronger balance sheet |
| Central Bank of India | PNB or BoB | Capital strength + distribution reach |
| Bank of India | SBI or BoB | Improved credit capacity |
| Bank of Maharashtra | PNB or BoB | Efficiency and reduced regional overlap |
| UCO Bank | Likely merger partner | Under evaluation |
| Punjab & Sind Bank | Likely merger partner | Under evaluation |
Analysts believe that UCO Bank, Punjab & Sind Bank, IOB, Central Bank, Bank of Maharashtra, and Bank of India are the earliest candidates for consolidation.
SBI has reportedly expressed openness to participate in the next round of mergers if necessary for market expansion.
Government’s Stand
Finance Minister Nirmala Sitharaman recently stated that India needs “a lot of big, world-class banks” to support the demands of a rapidly expanding economy. Discussions between the Finance Ministry and the RBI are expected to determine how the consolidation moves forward.
Industry observers emphasise that all reports remain speculative for now, and there is no official confirmation from the government regarding final merger combinations.
PSU Banks Performance Snapshot (Q2FY26)
According to CARE Edge:
- Public sector banks reported 4.7% YoY growth in net profit, compared with a 2.1% decline for private banks.
- Strong performance was driven by fee income, treasury gains, higher retail & MSME credit demand, and controlled operating costs.
- RoA for scheduled commercial banks dropped YoY due to margin pressure but improved sequentially driven by PSU banks.