Govt consolidation blueprint—UBI-BoI merger to create mega bank; Punjab & Sind Bank, BoM privatization on radar

Core Viewpoint - The Indian government is planning a new blueprint for merging select public sector banks to enhance their scale and streamline operations, as part of ongoing banking sector reforms [1][4]. Group 1: Proposed Mergers - Discussions are ongoing regarding the merger of Union Bank of India and Bank of India, which would create a state-run lender with assets of ₹25.67 trillion, making it the second largest after State Bank of India [2]. - The potential merger of Indian Overseas Bank and Indian Bank is also being considered, focusing on operational synergies due to their similar customer bases and geographic footprints [3][9]. - Other banks, such as Punjab & Sind Bank and Bank of Maharashtra, are being evaluated for potential privatization in later phases of the reform [3][11]. Group 2: Historical Context and Objectives - The current discussions are part of a long-term process of banking reforms in India that began in 1991, with the last major milestone being the amalgamation of associate banks into SBI in 2017 [4][13]. - The aim of the consolidation is to strengthen public sector banks through scale and efficiency, emphasizing operational optimization and synergies [4][10]. Group 3: Financial Performance and Timing - Public sector banks have shown strong performance recently, with total business rising from ₹203 trillion to ₹251 trillion between FY 2022-23 and FY 2024-25, and net NPAs declining from 1.24% to 0.52% [7]. - The finance ministry believes that the timing of these reforms, midway through its five-year tenure, is appropriate given the improved performance of state-run banks [7]. Group 4: Future Considerations - Internal teams have been assigned to conduct due diligence and cost-benefit analysis for the proposed mergers, with an external agency potentially involved once the banks are finalized [6]. - The government plans to advance its privatization agenda selectively, with the timing and sequencing of sales depending on market conditions and valuations [11][12].