The government has said no merger or consolidation proposal of state-owned banks is currently under consideration.

"Presently, no proposal on merger or consolidation of Public Sector Banks (PSBs) is under consideration of the Government," Minister of State for Finance Pankaj Chaudhary said on Monday in a written reply in the Lok Sabha.

Last month, Finance Minister Nirmala Sitharaman had stated that India needs a lot of big and world class banks. “The government is looking at this and work has already commenced. We are discussing with the Reserve Bank of India. We are discussing with banks,” she said, while speaking at the 12th SBI Banking and Economics Conclave.

This had triggered speculation that the government would start the process for a new wave of consolidation next year, with smaller PSBs like Punjab & Sind Bank, UCO Bank, Bank of Maharashtra, Indian Overseas Bank and Central Bank of India being likely targets.

The last consolidation drive happened in 2019-2020, reducing the number of PSBs to 12 from 27 in 2017 (merger of SBI subsidiaries took place in 2017).

Among the 12, seven are large PSBs including SBI, Punjab National Bank, Bank of Baroda, Canara Bank, Union Bank of India, Bank of India and Indian Bank.

One chain of thought is that bigger banks can support larger ticket-size lending, run with more operational efficiency and absorb higher risk-taking ability.

FDI cap

Replying to another question, Chaudhary said the foreign direct investment (FDI) limit in PSBs and private sector banks is 20% and 74%, respectively, as per the extant guidelines/ Foreign Exchange Management (Non-Debt Instruments) Rules 2019.

"FDI is considered as a major source of non-debt financial resource for the economic development, leading to long-term sustainable capital in the economy and contributes towards technology transfer, development of strategic sectors, greater innovation, competition and employment creation and supplement domestic capital, technology and skills for accelerated economic growth and development," he said.

IDBI divestment

In a separate reply, Chaudhary said the disinvestment of IDBI Bank will be carried out as per the CCEA approval.

The Cabinet Committee on Economic Affairs (CCEA) in its meeting on May 5, 2021, has given 'in principle' approval for the strategic disinvestment along with transfer of management control in IDBI Bank Ltd of such extent of shareholding in Government of India and LIC as may be decided in consultation with LIC and within the framework agreed to by the RBI, he said.

Pursuant to the CCEA's approval in May 2021 for strategic disinvestment along with transfer of management control in IDBI Bank, he said, 60.72% of IDBI Bank's equity is being offered for strategic disinvestment with transfer of management control, wherein the Government of India is offering 30.48% (post sale, GOI's residual equity to be 15%) and Life Insurance Corporation of India (LIC) is offering 30.24% for disinvestment (post sale, LIC's residual equity to be 19%).

In March 2025, he said, IDBI Bank had outstanding capital and liabilities of approximately Rs 4.11 lakh crore, which were backed by total assets (tangible and intangible) of the same amount.

Performance of RRBs

Replying to another question, Choudhary said financial health of Regional Rural Banks (RRBs) has improved in the recent years as they have posted highest ever consolidated net profit of Rs 7,571 crore during FY24, followed by second highest net profit of Rs 6,825 crore during FY25.

This decline was due to the implementation of the pension scheme with retrospective effect from November 1, 1993, and payments towards the computer increment liability, he said.

Also, he said the RRBs have shown consistent improvement in key financial parameters like capital to risk weighted assets ratio (CRAR), deposits, advances, non-performing assets (NPAs) and credit-deposit ratio.