Govt rules out immediate merger, divestment of public sector banks

The Indian government on Tuesday said it has no proposal under consideration to merge or disinvest public sector banks (PSBs), barely a day after announcing a 5% offer-for-sale (OFS) in Bank of Maharashtra.

Responding to an unstarred Rajya Sabha question on whether New Delhi plans to disinvest or consolidate four PSBs by 2026, Minister of State for Finance Pankaj Chaudhary said, “Presently, no proposal on merger or disinvestment of Public Sector Banks is under consideration of the Government.”

The clarification comes amid renewed speculation over the Centre’s long-term roadmap for the banking sector, particularly after a series of PSB mergers undertaken in 2019-20 and an ongoing push to strengthen balance sheets, improve governance standards and enhance competitiveness.

Finance Minister Nirmala Sitharaman had earlier indicated that the government is working with the Reserve Bank of India (RBI) and lenders on strategies to build “large, world-class banks” that can meet the needs of a fast-growing economy.

Speaking to CNBC-TV18 on November 6, Sitharaman said India requires “a lot of big banks, world-class banks,” adding that the government, RBI and banks have begun discussions on how to shape the next phase of consolidation and expansion. She cautioned that the process involves extensive preparatory work and that no final decision has been taken on the approach.

“It’s not by creating from among those that exist today just by amalgamation. That can also be one of the routes,” she said. “You need an ecosystem and an environment in which more banks can operate and grow… that environment is well established in India, but I need it to be a bit more dynamic.”

Her remarks suggested that while mergers remain an option, the broader goal is to create conditions for scalable, globally competitive banks-through capital support, regulatory alignment, and enabling more players to operate efficiently.

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