GOVERNMENT SAYS NO TO PSB MERGERS :
Dated 15.09.2025 : The recent “PSB Manthan” conclave, held on September 12 and 13, 2025, served as a crucial platform for the government, regulators, and Public Sector Banks (PSBs) to discuss the future roadmap for the Indian banking sector. The discussions were not just a review of performance but a forward-looking exercise aimed at aligning PSBs with the “Viksit Bharat 2047” vision.
It’s reported that there was a significant discussion on bank mergers in the meeting . The outcome of that discussion represents a distinct shift in the government’s approach.
While the idea of further consolidation was a topic of deliberation, the key takeaway from the conclave, as reported by various media outlets, is that the government has ruled out further bank mergers for now.
Here’s a breakdown of the discussion and the new rationale:
- A Clear “No” to Mergers in the Short Term:
- Multiple sources and government officials involved in the conclave have confirmed that consolidation is not part of the immediate roadmap.
- This marks a clear departure from the previous expectation that a new round of mergers might be on the cards to reduce the number of PSBs to a handful of large entities.
- A New Strategy for Global Ambition:
- The core goal of the Manthan was to chart a path for Indian PSBs to become global players. The target is to have at least two Indian banks in the world’s top 20 by 2047 as part of the “Viksit Bharat” vision.
- Instead of relying on mergers to achieve this scale, the new strategy is to focus on organic growth, modernization, and improving individual bank performance.
- The Rationale Behind the Shift:
- Technology over Consolidation: The government and bank leaders believe that the next phase of growth will be driven by technology, not by mere physical scale. The discussions heavily focused on using Artificial Intelligence (AI), digital platforms, and cloud-ready systems to enhance efficiency and competitiveness.
- Consolidation Fatigue: The previous rounds of mergers (reducing the number of PSBs from 27 to 12) were massive exercises that took years to complete. These mergers, while successful in improving financial health and reducing NPAs, also involved significant challenges related to IT integration, human resources, and cultural alignment. The current thinking seems to be that further mergers would divert the management’s focus from growth and modernization.
- Focus on Individual Bank Strengths: The new approach emphasizes strengthening each of the existing 12 PSBs. The belief is that enhancing the performance and governance of each institution will create a more resilient and globally competitive banking system as a whole, rather than relying on a few large entities created through mergers.
In summary, while the idea of bank mergers was discussed, the outcome was a definitive decision to hold off on further consolidation. The government’s new reform agenda is centered on technology, governance, and a customer-first approach to drive organic growth and achieve its ambitious global banking targets.
OTHER MATTERS DISCUSSED IN PSB MANTHAN
1. The Global Ambition: Creating World-Class Banks
Goal Setting: A central theme of the Manthan was the ambitious goal of having at least two Indian banks in the top 20 global lenders by assets by 2047. Currently, only State Bank of India and HDFC Bank are in the top 100.
Path to Scale: The discussions focused on how to achieve this scale through organic growth and improved efficiency. While the idea of further mergers was touched upon, the primary focus was on making each bank stronger individually. Some reports even explicitly stated that mergers are not currently on the roadmap, a point that is being actively debated. The emphasis is on improving autonomy, modernizing operations, and becoming more competitive.
2. A New Focus on Technology and AI
Beyond Digitization: The discussions went beyond simply digitizing existing processes. The focus was on a full-scale technology modernization agenda. This includes:
Moving away from legacy systems to agile, interoperable, and cloud-ready platforms.
Building shared infrastructure and utilities among PSBs to reduce duplication and enhance efficiency.
Leveraging Artificial Intelligence (AI) for a range of functions, from predictive credit scoring and fraud detection to personalized services and back-end automation.
AI Governance: There was a strong emphasis on the need for PSBs to put in place robust governance frameworks for AI, aimed at strengthening model risk management and nurturing a responsible approach to AI adoption.
Fintech Collaboration: Speakers highlighted the importance of collaboration with fintechs, academia, and global institutions to accelerate innovation and enhance the capabilities of PSBs.
3. Enhancing Customer Experience and Service
Customer-Centricity: This was identified as a critical area for improvement. Participants, including private sector experts, discussed how to embed a culture of customer centricity and service excellence in PSBs.
Process Simplification: The need for simplifying processes, ensuring timely redressal of customer grievances, and delivering seamless services was underscored. The goal is to combine technology-driven efficiency with a personalized, human-centered service model to compete with agile private and digital-first banks.
4. Governance and Operational ExcellenceBoard Autonomy: A significant point of discussion was the need for improving the autonomy of banks’ boards. The deliberation was on how to strengthen corporate governance while allowing banks greater operational freedom to make commercial decisions more efficiently.
Risk Management: Discussions focused on strengthening risk management frameworks to enhance the banks’ capacity to absorb economic shocks and uphold financial stability. This included a focus on cybersecurity and IT-related risks, given the increased reliance on technology.
5. Credit Growth and Strategic Sectors
Supporting “Viksit Bharat”: PSBs were positioned as key drivers in achieving the vision of “Viksit Bharat 2047.” This involves a renewed focus on lending to crucial sectors like agriculture, MSMEs, housing, and infrastructure.
Sunrise Sectors: There was a new emphasis on a forward-looking approach to lending, with PSBs being urged to become enablers for “sunrise sectors” such as renewable energy, electric mobility, green hydrogen, semiconductors, and digital industries.
Deposit Mobilization: To support the ambitious credit growth targets, discussions also covered strategies for improving deposit mobilization, including special drives and leveraging branch networks.
In essence, the PSB Manthan was not about any single, dramatic announcement like a merger. It was a comprehensive brainstorming session that created a detailed blueprint for the next phase of banking reforms. The core message was a shift in mindset: from a focus on stability and survival to a focus on global competitiveness, technological leadership, and a customer-centric approach.
PSB MANTHAN : IS MERGER OF PUBLIC SECTOR BANKS ON CARDS ?
Dated 12.09.2025 : Based on the latest news reports, there is a renewed discussion and consideration for further consolidation and mergers among Public Sector Banks (PSBs) This marks a shift from the “no further mergers” stance that was prevalent in late 2024 and early 2025.
The Finance Ministry is holding a two-day “PSB Manthan” (brainstorming session) with the top leadership of public sector banks today & tomorrow. The agenda for this conclave includes discussions on a wide range of topics, including credit growth, deposit mobilization, and strategic reforms. Sources indicate that the exchange of ideas will also touch upon the possibility of further consolidation among PSBs to create global-scale institutions.
- Rationale for a New Round of Mergers:
- Creating Global Giants: The government’s long-term vision is to have a few large, globally competitive banks that can support India’s economic growth and infrastructure push. Currently, only two Indian banks (SBI and HDFC Bank) are in the list of the top 100 global lenders by assets, which is seen as insufficient.
- Supporting Infrastructure: India has a massive infrastructure investment target of around $4.5 trillion by 2040. This requires larger banks with the capacity to lend for “bigger ticket-size” projects. The current level of bank credit is not yet where it needs to be to support this growth.
- Improving Efficiency and Valuations: Mergers are seen as a way to create leaner and more efficient banking systems. Experts believe that the valuations of PSBs remain attractive, and consolidation would further enhance their balance sheets and operational performance.
- Potential Targets for Mergers:
- While no official list has been announced, reports suggest that a potential merger could involve a consolidation of some of the smaller PSBs, such as UCO Bank, Bank of Maharashtra, Punjab & Sind Bank, and Central Bank of India. The government already holds a high stake (over 90% in most) in these banks, which could make the process administratively more feasible.
- There is also speculation about a possible merger among mid-sized PSBs like Union Bank of India, Canara Bank, and Indian Bank, depending on the synergies and software compatibility.
- Shift from the Previous Stance:
- The renewed discussion on mergers represents a change from earlier official statements that had ruled out further consolidation.
- The success of the previous mergers, which reduced the number of PSBs from 27 to 12 and improved their financial health, seems to have encouraged the government to consider a “second round” of reforms.
In conclusion, while the focus on divestment remains a key priority, the government is also actively and freshly contemplating another round of PSB mergers to create a handful of large, robust, and globally competitive banking institutions. The “PSB Manthan” is the latest platform where these ideas are being discussed and a roadmap is likely being charted.
UPDATE OF 26.08.2025 :
GOLDMAN SACHS APPOINTED AS TRANSACTION ADVISOR :
The Government of India has taken fresh and concrete steps towards the divestment of its stake in several Public Sector Banks (PSBs) in recent months. The focus is on a strategic sale and bringing down government shareholding, particularly in the smaller, listed PSBs.
- Appointment of Transaction Advisors: A major and recent development is the appointment of financial advisors to assist with the stake sale process. The government has enlisted Goldman Sachs as the transaction advisor for divesting its stake in four PSBs:
- Indian Overseas Bank (IOB)
- Central Bank of India
- UCO Bank
- Punjab & Sind Bank
This appointment signals a serious and tangible move to move from a stated policy to a concrete action plan for disinvestment in these specific banks. The advisor will be responsible for identifying potential buyers, structuring the deals, and ensuring a smooth execution of the stake sale.
- Stake Sale Plans in Multiple Banks: The government is reportedly planning to sell up to a 20% stake in the five PSBs mentioned above, which also includes Bank of Maharashtra. This divestment is intended to be executed through a combination of market-friendly mechanisms such as Offer for Sale (OFS) and Qualified Institutional Placement (QIP).
- Compliance with SEBI Norms: A key driver for this divestment is to help these banks comply with the Securities and Exchange Board of India (SEBI)‘s minimum public shareholding norms. Listed companies, including PSBs, are required to have at least a 25% public float. Currently, the government holds a very high stake (over 90% in some cases) in these banks, which is currently exempt from this rule until August 1, 2026. The planned stake sale will help them move closer to this regulatory requirement.
For the five PSBs where the government plans to sell a minority stake (UCO Bank, Bank of Maharashtra, Central Bank of India, Punjab & Sind Bank, and Indian Overseas Bank), the timeline is phased.
- Current Fiscal Year (FY26): The government aims to execute the stake sales in these banks within the current financial year. Reports from late June 2025 indicated a target of completing the process within the next six months, which would place the expected timeline in the latter half of 2025 and early 2026.
- Compliance Deadline: A key driver for this urgency is the SEBI deadline for listed companies to have a minimum public shareholding of 25%. While government-owned companies have an exemption until August 1, 2026, the planned divestments are a proactive move to comply with these norms well ahead of the deadline.
- Progress on IDBI Bank Privatization: The strategic divestment of IDBI Bank continues to be a top priority.
- The Securities and Exchange Board of India (SEBI) has given its approval for the reclassification of the Life Insurance Corporation of India (LIC)’s stake in IDBI Bank as a “public shareholding” after the divestment is completed.
- This is a crucial step that paves the way for the strategic sale.
- The government has also stated that the due diligence process with potential bidders is nearing completion, and financial bids are expected to be invited between October and December 2025.
In summary, the government has moved beyond just an announcement and is now in the active implementation phase of its PSB divestment policy. The appointment of advisors and the clear timeline for the IDBI Bank sale are the most significant fresh steps taken. This indicates a strong commitment to reducing its footprint in the banking sector and ushering in a new era of private-sector participation.
PSB Privatization 2025
Dated 19.07.20025 : Today is the anniversary day of bank nationalization announced by the then Prime Minister Smt Indira Gandhi on 19.07.1969. The anniversary day is being celebrated by many bank employees . However, we often hear more about the government’s increasing efforts to privatize the very same banks.
To have better clarity on the issue , we queried with a responsible AI app about the government’s thinking / newspaper reports on the issue, and we give below the answers we got for your perusal :
Any move to privatise PSBs ?
Yes . The Government of India is actively pursuing a strategy to disinvest its stake in several Public Sector Banks (PSBs), which is a step towards privatization, though often not a full transfer of ownership and control initially..
Here’s a breakdown of the current situation and reported plans
1. Current Disinvestment Plans
The government is looking to sell up to a 20% stake in five public sector banks through mechanisms like Qualified Institutional Placement (QIP) and Offer for Sale (OFS). The banks reportedly under consideration for this stake dilution include:
- UCO Bank
- Bank of Maharashtra
- Central Bank of India
- Punjab & Sind Bank
- Indian Overseas Bank (IOB)
The goal is to complete this process within the next six months (from mid-June 2025). This move aims to:
- Improve the banks’ capital adequacy ratios and meet funding requirements.
- Reduce direct state influence in banking operations.
- Make PSBs more market-oriented and financially agile.
- Progressively comply with SEBI’s 25% public float norms (though government-owned entities currently have an exemption until August 2026).
- Raise capital without burdening the exchequer, potentially targeting around ₹2,500 crore from UCO Bank’s divestment alone.
2. Broader Privatization Agenda
The current government has consistently indicated its intention to privatize select PSBs as part of its broader disinvestment agenda. This was explicitly announced by Finance Minister Nirmala Sitharaman in the 2021-22 Union Budget, where she mentioned plans to privatize two public sector banks (apart from IDBI Bank) and one general insurance company.
While the “big bang” approach to privatization might be tempered by political and economic considerations, the government’s stance is clear:
- Strategic vs. Non-strategic Sectors: The new Public Sector Enterprise (PSE) policy (released in 2021) aims to retain government presence only in strategically important sectors, with an eventual exit from others through privatization, merger, or subsidiarization. Banking, insurance, and financial services are considered strategic, but the policy also allows for a “bare minimum presence” of PSBs.
- IDBI Bank Divestment: The government is keen to finalize the strategic divestment of IDBI Bank, which is already categorized as a private bank, with the government and LIC jointly planning to sell a 60.7% stake. The success of this divestment could set a precedent for other PSBs.
- Reasons for Privatization: The primary drivers for privatization often cited are:
- Enhancing efficiency and profitability: Private banks are often perceived as more efficient and less burdened by non-commercial objectives.
- Improving governance: Reducing government control can lead to more autonomous and professional board-driven management.
- Reducing the financial burden on the government: This alleviates the need for continuous capital infusions for PSBs.
- Unlocking shareholder value: Allowing greater private participation can increase market valuation.
3. Challenges and Nuances
Despite the clear intent, the path to privatization for PSBs is not straightforward:
- Employee Union Resistance: Bank employee unions have historically strongly opposed privatization, leading to strikes and protests.
- Social Objectives: PSBs have played a crucial role in financial inclusion, extending services to rural areas and supporting priority sectors. Critics argue that privatization might lead private banks to prioritize profit, potentially neglecting these social responsibilities.
- Political Considerations: Implementing large-scale privatization can be politically sensitive, especially for a coalition government.
- Market Conditions: The timing and success of disinvestment depend heavily on market conditions and investor appetite.
- Regulatory Framework: Ensuring robust regulatory oversight remains crucial, regardless of ownership structure, to prevent risks like monopolization.
In essence, while full-scale privatization of all PSBs might not be imminent, the government is actively pursuing a strategy of gradual divestment and strategic stake sales in select public sector banks. This reflects a shift towards reducing its direct financial and operational control, aiming for a more market-driven and efficient banking sector.
Are there any plans for further mergers of PSBs?
As of mid-2025, the prevalent sentiment from the Government of India is that no further major mergers of Public Sector Banks (PSBs) are currently being considered.
Here’s a summary of the situation based on recent reports:
- Official Statements: Ministers of State for Finance and other government officials have repeatedly stated in late 2024 and early 2025 that the government is not considering any further mergers of PSBs. They emphasize that the previous rounds of consolidation have already strengthened the banks, improved their financial health, capital adequacy, and reduced non-performing assets (NPAs).
- Previous Mergers: India has significantly consolidated its PSB landscape over the past few years.
- In 2017, the State Bank of India merged with its five associate banks and Bharatiya Mahila Bank.
- In 2019, Dena Bank and Vijaya Bank were merged with Bank of Baroda.
- Most notably, in 2020, ten PSBs were merged into four large entities (Oriental Bank of Commerce and United Bank of India with Punjab National Bank; Syndicate Bank with Canara Bank; Allahabad Bank with Indian Bank; and Andhra Bank and Corporation Bank with Union Bank of India). These mergers brought down the total number of PSBs from 27 in 2017 to 12.
- Focus on Disinvestment (Privatization): Instead of further mergers, the current focus seems to be more on disinvestment (selling government stake) in some of the remaining PSBs. As discussed in the previous answer, the government is reportedly looking to sell up to a 20% stake in banks like UCO Bank, Bank of Maharashtra, Central Bank of India, Punjab & Sind Bank, and Indian Overseas Bank. This aligns with the broader privatization agenda, aiming to reduce government presence in non-strategic sectors and unlock value.
- Reasons for Past Mergers: The past mergers were primarily aimed at creating larger, stronger, and more globally competitive banks, improving operational efficiencies, better risk management, and addressing the issue of high NPAs. Officials believe these objectives have largely been met for now with the existing consolidation.
- NITI Aayog’s Perspective: While there’s no official plan for new mergers, NITI Aayog (the government’s think tank) has historically advocated for a limited number of large, strong PSBs (perhaps 4-5) to compete effectively globally. However, for the immediate future, this doesn’t translate into active merger discussions.
Therefore, while the idea of consolidation was a major theme in previous years, the current stance is to pause on further mergers and instead focus on other reforms, particularly the disinvestment of government equity in some PSBs.
Official Disinvestment Dashboard:
Anchor: DIPAM – Disinvestment Progress
URL: https://www.dipam.gov.in/
Finance Ministry Announcements:
Anchor: Ministry of Finance – Banking Division
URL: https://financialservices.gov.in
RBI on Bank Mergers & Governance:
Anchor: RBI Guidelines on Mergers
URL: https://www.rbi.org.in/scripts/FAQView.aspx?Id=105
Budget 2021 announcement reference (for context):
Anchor: Union Budget 2021–22 Highlights (Privatization)
URL: https://www.indiabudget.gov.in/