PSU Bank Index Climbs Up To 1.7% Amid Bank Merger Buzz

Nifty PSU Bank index jumped as much as 1.74 per cent on November 17 amid renewed buzz around mergers in the state-owned banking space. The sentiment shift came after the State Bank of India (SBI) expressed its support for another round of mergers, arguing that larger lenders are needed to meet India’s growing credit requirements.

In an interview with Bloomberg, SBI Chairman Challa Sreenivasulu Setty said further rationalisation could help strengthen the sector, noting that several public-sector banks are still sub-scale.

SBI, which handles nearly a quarter of India’s Rs 1,94,00,000 crore loan market, has total assets of $787 billion and a network of more than 22,500 branches. Setty said the creation of stronger banks will be key as India targets a major expansion in investment and long-term economic growth.

A separate report by Informist on November 15 said the Ministry of Finance is preparing a roadmap for the next phase of PSU bank mergers. The announcement for the same, it said, is likely around April-May, 2026. The plan is still under discussion and could see mergers taking place in two to three tranches rather than all at once, the report added.

“Currently, there are 12 PSU banks. The agenda is to have a maximum of 6-7 nationalised banks, but bigger in scale than in the current form,” a Ministry of Finance official told Informist. “The government may merge 1-2 smaller banks first and then merge them with SBI or PNB, or may directly merge them with SBI or PNB,” the official said.

The report added that the government will monitor the performance of banks for two more quarters before finalising which lenders will be consolidated.

Nifty PSU Bank 500% Run In 5 Years

PSU banks have lately been in focus amid the ongoing talks around the roadmap for creating fewer, larger, and stronger PSU banks. Accordingly, this has also reflected in the markets. Nifty PSU Bank index has surged nearly 30 per cent on an year-to-date (YTD) basis, and over the past five years, the index has surged nearly 500 per cent, which is quite rare for any sectoral index.

Finance Minister Nirmala Sitharaman, in a recent interview with CNBC-TV18, said India needs large, globally competitive banks and confirmed that the next phase of PSU bank consolidation is already in progress.

Banking mergers have been a key part of the sector’s transformation. Since 2017, India has gone through six rounds of consolidation. Between 2017 and 2020 alone, the government combined 10 banks into four bigger lenders, bringing down the number of state-owned banks from 27 to 12.

One of the most significant steps in this process was the merger of six associate banks with the SBI. These included State Bank of Bikaner & Jaipur, State Bank of Hyderabad, State Bank of Patiala, State Bank of Mysore, State Bank of Travancore, and Bharatiya Mahila Bank.