Bank Merger: A major change is soon to take place in the banking sector, and discussions about it are gaining momentum. The country’s third-largest public sector bank is about to be created. Preparations for the merger of two large public sector banks are progressing rapidly. Sources indicate that the merger of the two banks will be completed by the end of the year.
According to an FE report, the initial process for the merger between Union Bank of India and Bank of India has already begun. Both banks are currently conducting due diligence, which includes internal evaluation and operational integration of the process. According to some officials, the merger is likely to be completed by the end of the calendar year.
Merger to Create 4-5 Banks
A senior banking official, speaking on condition of anonymity, said that the government plans to merge smaller banks into larger ones, creating four to five large public sector banks instead of the current 12. This merger will create one of the largest public sector banks in the country.
Its balance sheet, branch network, and customer base will also expand significantly. The combined entity is expected to become the second-largest public sector bank and the third-largest bank overall, after State Bank of India and HDFC Bank, with assets of approximately ₹25.4 lakh crore in FY2025. This will benefit customers on a large scale. In terms of market capitalisation, the merged bank will rank sixth with approximately ₹2.13 lakh crore at current prices. It will also surpass Bank of Baroda, Canara Bank, and Punjab National Bank.
Challenges of the Merger Process
Given the differences in core banking systems and digital architecture, a major challenge in the merger process will be the integration of technology platforms. However, no official response has been received from either bank.
Both Union Bank and Bank of India have shown consistent improvement in asset quality and profitability in recent quarters. This has been possible due to reduced non-performing assets, recovery from distressed accounts, and strong capital reserves. The proposed merger is set to take place after a comprehensive consolidation drive undertaken by the government between 2017 and 2020, which saw 10 public sector banks merged into four larger entities.
This reduced the number of public sector banks from 27 to 12. For your information, the government is continuously working on merging public sector banks. More bank mergers are expected in the coming years. This is leading to a reduction in the total number of banks.
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