Why in the news
As part of continuing banking reforms, the Finance Ministry is drawing up another round of PSB consolidation, aiming for better scale, efficiency and capital use rather than mere size.
Key facts
| Pair under consideration | Notes |
|---|
| Union Bank of India + Bank of India | Second-largest PSB after SBI; assets ₹25.67 trillion |
| Indian Overseas Bank + Indian Bank | Synergies, complementary geographies, similar customers and products, branch and back-office rationalisation |
- Timeline expected after FY27; due diligence and cost-benefit study under way.
About bank mergers
In a merger, an acquiring bank absorbs one or more banks, taking over all their assets, liabilities and operations.
Purposes
- Stronger balance sheets.
- Operational efficiency and fewer duplicate branches.
- Better capital use and lower cost of funds.
- Easier NPA clean-up by strong banks absorbing weak ones.
- Higher credit flow through larger lenders.
- Technology integration.
Legal framework
- RBI is the overseeing regulator.
- Banking Regulation Act, 1949, mainly Sections 44A and 45.
- PSBs: Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970/1980, with Cabinet approval on Finance Ministry’s recommendation.
- Private banks: RBI approval after both boards and shareholders consent.
RBI approval stages
| Stage | What happens |
|---|
| Proposal | Banks submit valuation, capital structure and synergy plan |
| Due diligence | RBI checks financial health, governance and compliance record |
| Valuation and swap ratio | Independent experts fix share exchange |
| Draft scheme of amalgamation | Terms, staff, branches, depositors |
| Public notification | RBI may invite objections or suggestions |
| Final approval | Sanction under Section 44A, notified in the Gazette |
Key RBI norms
- Fit and proper criteria.
- Post-merger CRAR at least 11.5% with buffers.
- Asset quality and provisioning checks.
- Fair value for shareholders; protection of staff service and pension rights.
- No adverse impact on depositors.
- Post-merger reports on capital, integration and governance.
Types and past mergers
| Type / Year | Example |
|---|
| Voluntary | HDFC Ltd with HDFC Bank (2023) |
| Forced or directed | Punjab & Maharashtra Co-operative Bank with Unity SFB (2022) |
| PSB merger | OBC + United Bank of India into PNB (2020) |
| 2017 | SBI and 5 associate banks |
| 2019 | Vijaya + Dena into Bank of Baroda |
| 2020 | Canara-Syndicate; Indian-Allahabad |
Exam angle
- Legal sections: 44A and 45.
- CRAR figure: 11.5%.
- Largest PSB: SBI.