Bank Mergers Under Modi: How Public Sector Banks Were Consolidated

India entered the Modi era with 27 separate public sector banks, many of them individually undercapitalised and burdened with significant bad loans. Between 2017 and 2020, Modi’s government executed a sweeping consolidation, merging these into just 12 larger institutions. This article traces that process and what may come next.

The Scale of the Original Consolidation

According to Anantam IAS’s detailed timeline of the merger process, India’s public sector banking landscape was consolidated from 27 banks down to 12 between 2017 and 2020, one of the largest banking sector restructuring exercises in the country’s history, executed through several successive rounds of merger rather than a single combined transaction.

The Landmark SBI Merger

The process began with the State Bank of India’s 2017 merger with its five associate banks, State Bank of Bikaner and Jaipur, State Bank of Hyderabad, State Bank of Mysore, State Bank of Patiala, and State Bank of Travancore, along with the Bharatiya Mahila Bank, consolidating what had effectively been a group of regionally focused SBI-affiliated banks into a single unified institution, creating one of the world’s largest banks by customer base in the process.

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The Subsequent Merger Rounds

Following the SBI consolidation, the government executed further merger rounds combining other public sector banks, including Bank of Baroda’s 2019 merger with Dena Bank and Vijaya Bank, and a larger 2020 round that saw Punjab National Bank absorb Oriental Bank of Commerce and United Bank of India, Canara Bank merge with Syndicate Bank, Union Bank of India absorb Andhra Bank and Corporation Bank, and Indian Bank merge with Allahabad Bank, according to the consolidated merger records compiled by GK365’s tracking of India’s current public sector bank list.

The Stated Rationale

The government’s rationale for this consolidation, according to background covered by Retail Banker International’s reporting on the streamlining effort, centred on creating fewer but financially stronger, better-capitalised banks with greater lending capacity and improved ability to absorb non-performing asset shocks, addressing a banking sector stress problem that had built up considerably in the years before this consolidation began, a problem also addressed through the separate Insolvency and Bankruptcy Code reform covered in our earlier article.

Whether Further Consolidation Is Coming

More recent reporting has suggested the consolidation process may not be finished. The Logical Indian’s coverage, headlined “India May Merge 12 Public Sector Banks into Just 4 by 2027,” reported on discussion of a further, more dramatic consolidation round, though the same report specifically noted the government stated there was “no active proposal” formally under consideration at the time of that reporting, a distinction between speculative industry and media discussion of a possible future round and any confirmed, formally initiated government process. Separate reporting by Goodreturns specifically speculated about which of the remaining institutions, including State Bank of India, Punjab National Bank, and Bank of Baroda, might eventually absorb the smaller remaining public sector banks under such a scenario, while Informist Media’s reporting suggested any further consolidation, if it proceeds, would likely happen in two to three separate tranches rather than a single combined transaction, consistent with how the original 27-to-12 consolidation was itself executed in stages.

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The Trade-Offs of Consolidation

Bank consolidation of this scale carries genuine trade-offs beyond the headline capitalisation and lending-capacity benefits. Merging banks with different internal technology systems, staff structures, and regional customer relationships is a genuinely complex operational undertaking that can create short-term service disruptions for customers and integration challenges for staff, even where the longer-run financial stability case for consolidation is sound, a practical implementation cost that accompanied each of the merger rounds executed between 2017 and 2020.

The Combined Scale of a Merged Entity

Looking at one specific merged bank helps illustrate the scale these consolidations were designed to achieve. Punjab National Bank, following its 2020 merger with Oriental Bank of Commerce and United Bank of India, was targeting total business, meaning combined deposits and advances, approaching Rs 30 lakh crore by the end of FY26, according to statements from the bank’s own managing director reported by Business Standard, a scale of combined balance sheet that would have been unreachable for any of the three individual pre-merger institutions operating separately, illustrating concretely the kind of larger, better-capitalised lending capacity the consolidation programme was specifically designed to create.

Bottom Line

Modi’s government consolidated India’s public sector banking sector from 27 banks to 12 through several merger rounds between 2017 and 2020, beginning with State Bank of India’s absorption of its associate banks, aimed at creating fewer, financially stronger institutions better able to absorb bad-loan stress, with more recent, so far unconfirmed discussion suggesting a further consolidation to as few as 4 banks by 2027 remains a genuine possibility, even though the government has stated no active proposal is currently underway.

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Abhyudaya Verma