Mega Bank Merger: Two Banks Set to Merge — Will Your Chequebook and Passbook Change?

Bank Merger Update : The country may soon have its third largest public sector bank. In fact, preparations have begun for the merger of two large public sector banks. It is reported that the merger will be completed by the end of the year. According to sources cited in the FE report, the preliminary process for the merger between Union Bank of India and Bank of India (BOI) has already begun. Both banks are currently conducting due diligence, which includes internal evaluation of the process and operational integration. Some officials say the merger could be completed by the end of the calendar year.

4 to 5 banks will be formed by the merger of government banks

A senior banking official, speaking on condition of anonymity, said the government intends to merge smaller banks with larger ones, replacing the current 12 with four to five large public sector banks. The merger would create one of the country’s largest public sector banks, with a significantly expanded balance sheet, branch network, and customer base. The combined entity would become the second-largest public sector bank in fiscal year 2025, with assets of approximately Rs 25.4 lakh crore, and the third-largest after State Bank of India and HDFC Bank.

In terms of market capitalization, the merged bank will rank sixth with a market capitalization of approximately Rs 2.13 lakh crore at current prices, surpassing Bank of Baroda, Canara Bank, and Punjab National Bank. Currently, Union Bank and Bank of India are the fifth and sixth largest public sector banks, respectively.

Challenges of the merger process

Given the differences in core banking systems and digital architecture, a key challenge in the merger process will be the integration of tech platforms. However, no statements have yet been issued by either bank. Both Union Bank and Bank of India have reported consistent improvements in asset quality and profitability in recent quarters, driven by lower impairments, recoveries from stressed accounts, and strong capital reserves.

The proposed merger follows a massive merger drive carried out by the government between 2017 and 2020, which saw 10 public sector banks merged into four larger entities, reducing the number of public sector banks from 27 to 12. Since then, policymakers have repeatedly stressed the need to create a smaller but stronger group of lenders capable of meeting India’s growing loan demand, funding large infrastructure projects, and competing more effectively with private sector counterparts.