Consolidation in public sector banks is expected to gain momentum in the coming year with the government expressing its desire to have more big, world-class banks in the country to fuel the next phase of growth for Viksit Bharat by 2047.
Only last month, Union Finance Minister Nirmala Sitharaman had said that India needs many big, world-class banks and work in this regard has already commenced. The government has initiated discussions with the Reserve Bank and public sector banks, she had said, dropping enough hints about consolidation in the public sector space.
Currently, there are 12 public sector banks, and only the country's biggest lender, State Bank of India (SBI), is among the global top 50 by assets. The SBI is ranked 43rd globally by assets, followed by private-sector HDFC Bank at 73rd.
In a bid to create larger banks, the government previously conducted two rounds of consolidation. In the biggest consolidation exercise in the banking space, the government announced four major mergers of public sector banks in August 2019, bringing the total number down to 12 from 27 in 2017.
Effective April 1, 2020, United Bank of India and Oriental Bank of Commerce were merged with Punjab National Bank; Syndicate Bank was merged with Canara Bank; Allahabad Bank was amalgamated with Indian Bank; and Andhra Bank and Corporation Bank were consolidated with Union Bank of India.
In 2019, Dena Bank and Vijaya Bank were merged with Bank of Baroda. Prior to this, the government had merged five associate banks of the SBI and Bharatiya Mahila Bank with the State Bank of India. This was done in April 2017 with the intent to make SBI much bigger. As regards the State Bank of India, the bank's board in 2016 submitted a proposal to the government to merge its five subsidiaries, including the first women-oriented lender, Bhartiya Mahila Bank, with itself.
The merged entity, effective April 1, 2017, expanded SBI's asset base to Rs 44 lakh crore, with 22,500 branches and 58,000 ATMs. SBI first merged the State Bank of Saurashtra with itself in 2008. Two years later, the State Bank of Indore was merged.
Besides, the government has initiated the privatisation of IDBI Bank and Department of Investment and Public Asset Management (DIPAM) Secretary Arunish Chawla had expressed hope that the strategic sale would be concluded by March 2026.
As part of the privatisation exercise, the government in January 2019 sold its controlling 51 per cent stake in IDBI Bank to Life Insurance Corporation of India (LIC). As regards the profitability of public sector banks, 12 banks, which account for around 60 per cent of the market share in total business, together reported a net profit of Rs 93,675 crore during the first half of 2025–26. This is 10 per cent higher than Rs 85,520 crore in the April-September period of FY25. Going by the trend, the net profit of public sector banks is expected to cross the landmark Rs 2 lakh crore mark at the end of FY26.
The previous financial year closed with PSU banks posting a record profit of Rs 1.78 lakh crore, up from Rs 1.41 lakh crore in FY24, a 26 per cent growth. On the other hand, the private sector banking space witnessed a large inflow of foreign capital.
For example, Japan's Sumitomo Mitsui Banking Corporation (SMBC) in May decided to acquire a 20 per cent stake in Yes Bank for Rs 13,483 crore. The deal was concluded in September with the stake transferred to the Japanese firm. In October, Emirates NBD Bank, the second-largest in the UAE, decided to acquire a 60 per cent majority stake in RBL Bank for Rs 26,853 crore.
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