India’s public sector banking landscape is on the brink of one of its most significant structural shifts in recent years. Over the past week, multiple reports from Bloomberg and Informist have confirmed that the Finance Ministry has begun drafting a detailed roadmap for the next round of PSU bank mergers. With the government aiming to consolidate the existing 12 public sector banks into a stronger group of 6–7 national lenders, the proposal gained further momentum after SBI Chairman Challa Sreenivasulu Setty openly supported the idea of another consolidation cycle.
At a time when PSU banks have collectively posted record profits and India’s financing needs are set to soar for its 2047 growth vision, the debate around scale versus efficiency has once again reached the forefront.
Key Insights on India’s Next PSU Bank Merger Plan
- These key takeaways highlight the most critical developments surrounding the proposed restructuring of public sector banks.
- The Finance Ministry is working on a multi-phase merger roadmap, as reported by Informist, with an announcement expected around April–May.
- The plan aims to reduce the number of PSU banks from 12 to a maximum of 6–7, creating larger institutions capable of financing India’s long-term growth.
- Bloomberg reported that SBI Chairman Challa Sreenivasulu Setty said additional rationalisation “may not be a bad idea” and could strengthen the sector.
- Smaller and sub-scale banks may be merged either directly with SBI or PNB, or first combined with each other before being integrated with a larger lender.
- SBI-led public sector banks posted a record cumulative profit of ₹49,456 crore in Q2 FY26, marking a 9% YoY increase despite two banks reporting declines.
- SBI alone contributed 40% of the Q2 FY26 earnings, posting a net profit of ₹20,160 crore, up 10% year-on-year.
- The government will evaluate PSU banks’ performance for two more quarters before finalising which banks will be merged.
- India’s long-term economic target requires bank financing to rise to 130% of GDP from the current 56%, making scale an essential factor.
- SBI is modernising its core banking infrastructure through hollowisation, microservices, and externalisation, set to be completed within two years.
Government’s Merger Strategy Gains Pace
According to Informist Media, the Finance Ministry has already initiated the groundwork for the next phase of PSU bank consolidation. The report states that the ministry intends to roll out the merger plan in two to three tranches, rather than announcing a single sweeping overhaul. A senior official quoted in the report explained that while the proposal is still being refined, the target remains clear: reduce the number of nationalised banks to 6–7, each significantly larger in scale than their current form.
These multiple phases will allow the government to assess the market response, operational integration challenges, and financial stability implications. Authorities have indicated that they will closely monitor bank performance for the next two quarters before taking a final call on the specific combinations.
SBI Chairman Endorses the Next Merger Wave
In a Bloomberg News interview, SBI Chairman Challa Sreenivasulu Setty stated that further consolidation “might make sense,” especially given the presence of smaller, sub-scale banks that struggle to match the capabilities of larger lenders. His remarks come at a time when policymakers are examining ways to build financial institutions capable of sustaining India’s rapid economic momentum.
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Setty’s endorsement is significant. As the head of the country’s largest public sector bank, his support signals industry acceptance of the merger plan and reinforces the view that consolidation can strengthen the sector’s resilience.
Strong Profitability Strengthens the Case for Consolidation
The timing of this discussion is crucial, as PSU banks led by SBI have delivered exceptional financial performance. According to publicly available results, the 12 public sector banks collectively reported a record ₹49,456 crore profit in Q2 FY26, a 9% year-on-year increase. SBI alone accounted for 40% of these earnings, underscoring its dominant position in the sector.
In the corresponding quarter last year (Q2 FY25), PSU banks had posted ₹45,547 crore in profits, making the current growth especially noteworthy. Even with two lenders reporting declines, the sector maintained its upward trajectory, showing improved asset quality and operational strength.
This financial momentum strengthens the government’s argument for creating fewer but more powerful banks capable of handling large-scale lending needs.
India’s 2047 Growth Vision and the Need for Scale
India’s ambition to become a developed economy by 2047 requires enormous financial capacity. According to Bloomberg’s report, India must expand bank financing to 130% of GDP, compared to the current 56%, to support massive infrastructure and industrial development.
The government’s push for consolidation aligns with this long-term vision. Larger banks with wider balance sheets would be better equipped to lend at the scale required to support national growth. This includes funding for transport corridors, manufacturing hubs, renewable energy, and digital infrastructure.
Preparations for Modernisation Inside SBI
Beyond mergers, the sector is undergoing technological transformation. SBI Managing Director (corporate banking and subsidiaries), Ashwini Kumar Tewari, said at the Singapore FinTech Festival that the bank is modernising its core systems through hollowisation, microservices, and externalisation. This overhaul aims to ensure continuity, resilience, and trust while bringing SBI’s legacy systems to global standards. The process is expected to be completed within the next two years.
These modernisation efforts are likely to play a crucial role in supporting any future merger integrations.
Where India’s Banking Landscape Stands Globally
In global comparison, India’s public sector banks remain relatively small. SBI’s assets are around $800 billion, while the next four largest PSBs hold between $180 billion and $210 billion. In contrast, China’s ICBC has $6.9 trillion in assets, and US giants such as JPMorgan Chase and Bank of America are in the multi-trillion-dollar range.
This gap underscores the rationale behind India’s consolidation debate. Larger banks are seen as better positioned to withstand global turbulence, cyber threats, fraud risks, and climate-related uncertainties.
A Defining Moment for India’s Public Sector Banking Future
India’s renewed push for PSU bank mergers marks a decisive chapter for the nation’s financial system. With the Finance Ministry preparing a phased consolidation plan and industry leaders like the SBI Chairman acknowledging the need for rationalisation, the groundwork for a transformative restructuring is underway. The combination of strong profitability, ambitious national growth targets, and the necessity for scalable capital positions consolidation as a crucial strategic move. As policymakers analyze bank performance over the coming quarters, the decisions they make will shape the resilience, stability, and global relevance of India’s public sector banks for decades to come.
Spiritual Insight: The Transformative Knowledge of Tatvdarshi Sant Rampal Ji Maharaj
While strengthening the nation’s economy and creating world-class banks is a remarkable step, true progress demands more than financial growth. A prosperous nation is built not only on strong institutions but also on upright, compassionate and ethical citizens. Economic development loses its meaning if corruption, dishonesty, or lack of humanity continue to weaken the society from within.
To cultivate genuine virtues, one must seek the guidance of a Tatvdarshi Saint, a Spiritual Master who reveals the true path of righteousness and inner purity. Today, Tatvdarshi Sant Rampal Ji Maharaj, the incarnation of Supreme God Kabir Saheb, is imparting the authentic spiritual knowledge that transforms human conduct at its core.
His teachings inspire people to live a simple, honest and morally elevated life : a life where a human behaves like a true human, not driven by impulses like an animal. Under His divine guidance, individuals learn to renounce wrongdoings, rise above greed, adopt compassion, and dedicate their lives to the true purpose of human birth: attaining True Bhakti that leads to Moksha.
This spiritual awakening, when embraced by society, can uplift not only individuals but the nation as a whole, ensuring progress that is both material and moral.
For more authentic spiritual knowledge, visit www.jagatgururampalji.org
and follow the YouTube channel Sant Rampal Ji Maharaj.
FAQs on India’s Upcoming PSU Bank Merger Plan
1. What is the government’s new PSU bank merger plan?
The Finance Ministry is drafting a multi-phase roadmap to consolidate 12 PSU banks into 6–7 stronger national lenders, with an announcement expected in April–May.
2. Which banks may be merged in the next consolidation round?
Reports suggest smaller sub-scale banks may merge with SBI or PNB directly, or first with each other, depending on performance over the next two quarters.
3. Why is SBI supporting another PSU bank merger round?
SBI Chairman Setty said further rationalisation “may not be a bad idea,” noting consolidation could strengthen banking scale and resilience.
4. How did PSU banks perform financially in Q2 FY26?
PSU banks posted a record ₹49,456 crore profit, up 9% YoY, with SBI contributing 40% through ₹20,160 crore net earnings.
5. Why does India need stronger and larger public sector banks?
India’s 2047 growth vision requires bank financing to rise to 130% of GDP, demanding larger lenders capable of supporting massive infrastructure and industrial expansion.
