The initial merger process between Union Bank of India and Bank of India (BoI) seems to have begun, according to sources familiar with the matter.
Both banks are currently undertaking due diligence, including internal assessments of processes and operational integration. Some officials said the merger could be completed by the end of the calendar year.
PSU bank mergers to create 4-5 lenders, says official
“The government is keen to merge smaller banks with larger ones to create four to five big PSU banks instead of the current 12,” said a senior banking official aware of the developments, requesting anonymity.
The merger would create one of the country’s largest public sector lenders, with a substantially expanded balance sheet, branch network and customer base. The combined entity would become the second-largest PSU bank, with assets of about ₹25.4 lakh crore in FY25, and the third-largest bank overall after State Bank of India and HDFC Bank.
In terms of market capitalisation, the merged bank would rank sixth at about ₹2.13 lakh crore at current prices, overtaking Bank of Baroda, Canara Bank and Punjab National Bank. At present, Union Bank and Bank of India are the fifth- and sixth-largest PSU banks, respectively.
What are the main challengens in the merger process?
One of the key challenges in the merger process will be the integration of technology platforms, given differences in core banking systems and digital architecture. Queries emailed to both banks remained unanswered at the time of publication.
Both Union Bank and BoI have reported steady improvements in asset quality and profitability over recent quarters, aided by lower slippages, recoveries from stressed accounts and stronger capital buffers.
The proposed consolidation follows the government’s mega-merger exercise between 2017 and 2020, during which 10 public sector banks were merged into four larger entities, reducing the number of state-owned banks to 12 from 27.
Since then, policymakers have repeatedly underscored the need to create fewer but stronger lenders capable of meeting India’s growing credit demand, funding large infrastructure projects and competing more effectively with private sector peers.