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India may be gearing up for another major round of public sector bank (PSB) mergers, and this time, it has received strong backing from the country’s largest lender. CS Setty, chairman of the State Bank of India (SBI), has endorsed the Centre’s proposal to merge smaller state-run banks with bigger lenders to accelerate India’s financial growth and improve scale efficiencies.

Speaking to Bloomberg, Setty said that several lenders remain “sub-scale,” and further rationalisation could help boost the banking sector’s long-term competitiveness. “If another round happens, it may not be a bad idea,” he added.

What the Government Is Proposing

According to recent reports, the Indian government is examining a mega merger plan that would combine smaller PSBs—including Indian Overseas Bank (IOB), Central Bank of India (CBI), Bank of India (BOI), and Bank of Maharashtra (BOM)—with major lenders like SBI, Punjab National Bank (PNB), and Bank of Baroda (BoB).

The proposal will first be reviewed at the Cabinet level and subsequently examined by the Prime Minister’s Office (PMO). The rationale is clear: consolidation could empower India’s public banking system to support the next phase of credit expansion, infrastructure investment, and financial sector reforms.

Why Mergers Are Back on the Table

The renewed push marks a shift from NITI Aayog’s earlier recommendation that smaller PSBs should be privatised or restructured. At that time, the think tank had suggested retaining only a few large state-run banks—SBI, PNB, BoB, and Canara Bank—under government control, while reducing state ownership in others.

However, the government now appears to favour scaling up its public lenders rather than selling them off. Consolidation, policymakers believe, could create stronger banks with:

• Greater lending capacity
• Better balance sheets
• Improved operational efficiencies
• Wider geographical reach
• Enhanced ability to compete with private and global banks

Lessons From the 2019–20 Mega Mergers

India’s last major consolidation in 2019–20 saw 10 PSBs merged into four, creating stronger institutions such as Punjab National Bank–Oriental Bank–United Bank and Canara Bank–Syndicate Bank. The move helped improve capital adequacy and operational stability—outcomes the government now seeks to replicate.

What Lies Ahead

If approved, the proposed mergers could reshape India’s banking landscape once again. While experts caution about integration challenges, a larger and more resilient public banking ecosystem may be crucial for sustaining India’s high-growth trajectory in the coming decade.