Meeting for the merger and privatization of PSU banks may be held soon by the prime minister's office

                                       

As per the report, the Privatisation of two public sector banks may be discussed. The meeting is likely to discuss bank consolidation, more operational autonomy for boards of state-run banks, raising FDI limits in PSBs to 49 percent from the current 20 percent, and supporting these banks’ need for additional capital.

The inter-ministerial discussions on the reforms in PSU Banks is in the final stages, and once the PMO meeting is concluded, political decisions will be taken closer to the Budget. The Central government is planning to execute its agenda between 2026 and 2028, before the 2029 general elections.

India is considering increasing the foreign investment limit in public sector banks (PSBs) from the current 20% to 49% in an effort to strengthen these banks and make it easier for them to raise capital. As per the information available till now, while higher foreign stakes may be allowed, the government’s shareholding in PSBs will not fall below 51%, thereby ensuring their public sector status. A final decision will be taken at the highest level of government.

Finance Minister Nirmala Sitharaman on November 6 had also confirmed that the government has begun work on the next phase of public sector bank (PSB) consolidation. She said India now needs several big, world-class banks to support the requirements of a fast-growing economy.

As per sources, the government is considering merging Indian Overseas Bank (IOB), Central Bank of India (CBI), Bank of India (BOI), and Bank of Maharashtra (BoM) with larger banks such as Punjab National Bank (PNB), Bank of Baroda (BoB), and State Bank of India (SBI).

The latest merger proposal also follows NITI Aayog’s recommendation to restructure or privatise smaller PSBs such as IOB and CBI. The government’s think tank had earlier suggested keeping only a few large state-run banks — SBI, PNB, BoB, and Canara Bank — while merging or reducing the government’s stake in the rest. The current plan builds on those earlier recommendations but aligns them with today’s conditions. With fintech and private banks growing rapidly, the idea is to position public sector banks strategically instead of spreading them too thin.

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PM Modi calls for strict action against corrupt bankers

Prime Minister Narendra Modi last week called for “strict action” against bank officials who indulge in corruption, frauds or criminal conspiracy, according to the minutes of the meeting of the multi-modal platform PRAGATI (proactive governance and timely implementation), underlining the government’s zero tolerance for any such activity. 

The minutes of the June 27 meeting accessed by ET show that the PM issued these directions after conducting a review of issues regarding the banking sector with the Department of Financial Services (DoFS). 

A few days before this meeting, on June 21, the Indian Banks Association (IBA) had condemned the spate of arrests and charge sheets by investigative agencies in alleged bank fraud cases and at an emergency meeting on June 22 sought setting up of an independent committee and inclusion of a Reserve Bank of India official as part of it to scrutinise charges against the bankers. 

A senior official in the government, speaking on condition of anonymity, however said that the two developments — IBA’s complaints-cum-emergency meeting and the PM’s review meeting — were not linked. 

VG Kannan, IBA’s CEO and a former State Bank of India official had told on June 21that the association had already taken up the matter with the DoFS in Delhi and the Maharashtra government. 

The minutes of the PM’s monthly review meeting on various sectors of the government, held six days later, say, “Strict action should be taken against bank officials/officers involved in misbehaviour/harassment/fraud/criminal conspiracy/corruption etc.” 

The IBA had raised the red flag after Pune Police arrested five Bank of Maharashtra officials, including its CEO Ravindra Marathe, for allegedly colluding with a real estate developer to divert money and cheat shareholders. 

In January, former IDBI chairman Yogesh Agarwal and four executives were arrested in a case linked to fugitive liquor baron Vijay Mallya’s loan default. Several other officials of state-run banks face charges too. 

At the June 27 PRAGATI review meeting, the PM also directed the DoFS to fix a time limit for disposal of insurance claim under its various schemes such as the Pradhan Mantri Jivan Jyoti Bima Yojna and Pradhan Mantri Suraksha Bima Yojna. Nearly 5.4 crore people have enrolled in the first scheme and nearly 14 crore in the latter.

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