Shares of several public sector banks witnessed a significant surge during Monday's trading session, climbing as much as 4% following reports that the government is preparing for another round of consolidation in the banking sector.
Market Responds to Consolidation News
Stocks of Central Bank of India, UCO Bank, and Punjab & Sind Bank were among the top gainers, with the rally extending to other public sector banking counters. The positive momentum comes after financial news service Informist reported that the finance ministry is currently drafting a strategy for the next phase of mergers among state-owned banks.
According to the report, an official announcement regarding the consolidation plan is expected between April and May of next year. The government's approach appears to be phased rather than implementing all mergers simultaneously.
Phased Consolidation Strategy
The proposed consolidation would reduce the number of public sector banks from the current 12 to approximately 6-7 larger entities, creating nationalized banks with greater scale and operational efficiency. The Informist report indicated that the mergers would occur in two to three phases rather than all at once.
The government's strategy might begin with merging one or two smaller banks before eventually integrating them with larger counterparts such as State Bank of India or Punjab National Bank. Alternatively, some smaller banks could be merged directly with these banking giants.
Building Stronger Banking Institutions
This move represents a continuation of the government's efforts to create stronger, more competitive public sector banks that can better support India's growing economic needs. The previous rounds of bank mergers have already reduced the number of public sector banks from 27 in 2017 to the current 12.
Market analysts suggest that the consolidation could lead to improved operational efficiency, better resource allocation, and enhanced lending capacity for the merged entities. The positive stock market response indicates investor confidence in the potential benefits of further consolidation in the public sector banking space.
The timing of the expected announcement in April or May 2026 gives market participants several months to assess the potential implications of the proposed mergers on individual bank stocks and the broader banking sector.
