India’s Mega Bank Merger Plan: FM Nirmala Sitharaman Confirms Talks With RBI for World-Class Banks

India is gearing up for its next phase of financial transformation — the creation of big, world-class banks that can meet the demands of a growing economy. Finance Minister Nirmala Sitharaman, while addressing multiple industry events this week, confirmed that discussions are actively underway with the Reserve Bank of India (RBI) and major lenders to consolidate public sector banks (PSBs) into larger, globally competitive entities.

This initiative is part of India’s broader “Viksit Bharat 2047” vision — a roadmap toward making India a developed economy by its 100th year of independence. The new wave of consolidation, being termed “PSB Consolidation 2.0,” could transform India’s banking landscape, potentially reducing the number of state-run banks from 12 to as few as four to six mega banks.

Background: The Journey of Bank Consolidation in India

Public sector bank mergers are not new to India. The first major phase of consolidation began in 2019, when the government merged several PSBs to strengthen balance sheets, improve efficiency, and reduce overlapping operations. Key mergers from that phase include:

• Bank of Baroda (BoB) merged with Vijaya Bank and Dena Bank

• Punjab National Bank (PNB) absorbed Oriental Bank of Commerce and United Bank of India

• Union Bank of India (UBI) merged with Andhra Bank and Corporation Bank

• Canara Bank combined with Syndicate Bank

• Indian Bank merged with Allahabad Bank

This reduced the number of PSBs from 27 in 2017 to 12 by 2021.
Now, India seems poised for another round of rationalization aimed at global scale and competitiveness.

Nirmala Sitharaman’s Statement: “India Needs Big, World-Class Banks”

Speaking at a recent State Bank of India (SBI) event, Sitharaman emphasized that “Developed India needs big, world-class banks.” She revealed that the government is already working with the RBI and public sector lenders to discuss new consolidation plans.

“We need banks that are not just strong domestically but also capable of supporting Indian companies in global markets,” the minister said.

She added that the goal is to ensure that credit availability, technology adoption, and operational efficiency match global standards, helping India sustain its $5 trillion economy vision and beyond.

What the Next Phase May Look Like

According to reports from Mint, BusinessLine, and Reuters, several merger combinations are being evaluated.
Among the most discussed proposals:

• Union Bank of India (UBI) and Bank of India (BoI) may merge to form India’s second-largest PSU bank, next only to SBI.

• Punjab & Sind Bank (PSB) and Bank of Maharashtra (BoM) are reportedly under review for strategic privatization.

• Some experts suggest further mergers involving SBI’s associate-like institutions, consolidating smaller PSBs into SBI for greater financial muscle.

If implemented, this could lead to a structure where India is left with four to five giant state-run banks — each large enough to compete globally with the likes of JPMorgan, HSBC, or Bank of China.

Why India Needs Larger Banks

1. To Support Economic Growth:
   India’s ambitious growth trajectory demands strong institutions capable of funding infrastructure, green energy, and digital expansion.

2. To Increase Global Competitiveness:
   As India integrates deeper into the global value chain, it needs banks with international reach and capacity for large transactions.

3. To Reduce Operational Costs and Improve Efficiency:
   Mergers create economies of scale, allowing banks to invest more in technology, compliance, and innovation.

4. To Strengthen Financial Stability:
   Larger banks with diversified portfolios are more resilient to economic shocks — a crucial lesson from the pandemic era.

5. To Expand Credit to Priority Sectors:
   Agriculture, MSMEs, and startups continue to rely on public sector banks. Bigger banks can extend larger and more structured credit lines.

Reactions from Experts and the Market

Financial analysts have largely welcomed the move, calling it a “logical next step” in the modernization of India’s banking system.

Manu Kaushik (Financial Express) wrote that the government’s strategy mirrors global trends, where countries consolidate smaller banks to build financial champions.
Ashwin Manikandan (Reuters) noted that the merger talks align with India’s broader macroeconomic ambitions.

Meanwhile, stock market experts see potential short-term volatility but long-term value creation in PSU bank stocks like Union Bank, Bank of India, PNB, and Canara Bank. According to analysts on TradingView and The Bridge Chronicle, merger speculation often drives investor sentiment upward due to expectations of synergies and improved efficiency.

Global Perspective: Learning from the World

Countries such as China, Japan, and South Korea have successfully built mega-banking institutions capable of financing trillion-dollar economies. For instance:

• ICBC (China) – the world’s largest bank by assets

• Mitsubishi UFJ (Japan) – global operations and strong international footprint

• Korea Development Bank (South Korea) – a model for government-backed infrastructure financing

India’s ambition is to replicate similar strength while maintaining domestic inclusivity — ensuring small businesses and rural sectors continue to get attention.

Challenges Ahead

While the government’s intent is clear, executing another round of mergers will not be without hurdles:

• Integration challenges: Cultural and technological integration post-merger can be complex.

• Employee unions: Past mergers faced resistance from staff unions fearing job rationalization.

• Credit risks: Larger banks must avoid concentration risks that come with massive loan books.

• Regulatory coordination: RBI’s approval and operational guidance will be crucial to ensure smooth transitions.

However, with lessons learned from the 2019 mergers, experts believe India is better prepared for PSB Consolidation 2.0.

Atmanirbhar Bharat and Global Integration

The Finance Minister clarified that Atmanirbhar Bharat is not an isolationist policy.

“It means strengthening ourselves to meet domestic needs while embracing global value chains,” she said.

This philosophy extends to the banking sector — where self-reliance means robust domestic banking capacity that simultaneously engages in international finance.

Conclusion: Toward a Stronger, Global Banking Ecosystem

India’s banking transformation journey is entering a decisive new phase.
With strategic mergers, global ambition, and strong regulatory oversight, the government aims to create world-class banks that can not only fuel India’s economic expansion but also establish its presence on the global financial map.

As Finance Minister Nirmala Sitharaman aptly put it,

“Developed India will need many large, world-class banks — and we are working to make that a reality.”

The coming months will reveal which banks will merge, which may be privatized, and how India’s banking future will unfold — but one thing is certain: the era of mega Indian banks has begun.