Finance Minister Nirmala Sitharaman has spoken openly about the need for merging among Indian banks. She emphasised that India requires large banks capable of competing with global financial institutions. Currently, the State Bank of India (SBI) is the largest bank in the country. The government is now preparing to merge two public sector banks to create a new bank that would become the second-largest in India, just after SBI.
Which banks are being merged
The government is planning to merger Union Bank of India (UBI) and Bank of India (BOI). Together, these banks have a combined customer base of 25.5 crore (255 million), making the new entity slightly smaller than SBI. The headquarters of both banks is in Mumbai and preparations for the merger have been underway for several years.
The merger aims to reduce bank losses, decrease non-performing assets (NPA), improve operational efficiency and strengthen the financial stability of the combined institution. By creating a larger and more robust bank, the government hopes that Indian banks can stand strong against global competitors.
While there has been a lot of speculation and discussion about a possible merger between the Bank of India (BOI) and Union Bank of India (UBI), it’s important to note that as of January 2026, the Government of India has not officially announced any merger between these two banks.
This conversation relates to the ongoing effort by the Indian government to consolidate Public Sector Banks (PSBs) in order to create fewer but stronger “mega-banks.”
The Landscape of Public Sector Bank Consolidation
Since 2017, the Indian banking sector has seen significant changes. The main aim of these mergers is to improve the Capital Adequacy Ratio, increase operational efficiency, and boost the banks’ ability to fund large infrastructure projects.
Key Previous Mergers (The Blueprint)
If a merger between BOI and UBI were to happen, it would probably follow the operational model set by previous successful mergers:
– The PNB Anchor: Punjab National Bank merged with Oriental Bank of Commerce and United Bank of India.
– The Union Bank Anchor: In 2020, Union Bank of India acted as an anchor bank by absorbing Andhra Bank and Corporation Bank.
– The Canara Bank Anchor: Canara Bank merged with Syndicate Bank.
Profile of the Potential Partners
To understand the impact of a merger, it’s essential to look at the strengths of both banks.
1. **Bank of India (BOI)**
Founded in 1906, BOI is recognized for its strong international presence and a significant retail network in Western India.
Strengths: A solid foreign exchange business and a large corporate loan portfolio.
Focus: A strong emphasis on the Small and Medium Enterprises (SME) sector and agricultural lending.
2. **Union Bank of India (UBI)**
After its merger in 2020, Union Bank has grown to become one of the largest PSBs in India.
Strengths: Gained a strong position in Southern India (through Andhra and Corporation Bank) and offers a comprehensive digital banking suite.
Focus: Retail loans and major digital transformation efforts.
Strategic Implications of a BOI-Union Merger
If these two banks merged, the new entity could become the second-largest Public Sector Bank in India, likely competing with the State Bank of India (SBI).
A. Operational Synergies
Geographic Coverage: The strengths of BOI in the North and West, combined with Union Bank’s reach in the South, would create a significant pan-India institution.
Technology Integration: Both banks use the Finacle Core Banking Solution. This shared system would make data migration easier compared to banks using different platforms.
Cost Rationalization: A merger would allow for the closure of overlapping branches in urban areas, cutting rental costs and optimizing staff deployment.
B. Financial Stability
NPA Management: A merger allows for a unified method to handle Non-Performing Assets. A larger balance sheet can better absorb losses from big corporate defaults.
Lending Capacity: The merged bank would have a higher limit for single borrowers, allowing it to manage large loans for major national infrastructure projects.
Challenges to Integration
A merger of this size comes with significant challenges:
Human Resources:
Combining different work cultures and seniority among thousands of employees can be very difficult. Labor unions often raise concerns about job security or changes in promotion paths.
Customer Friction:
During the transition phase, customers might experience temporary problems with chequebooks, IFSC codes, and mobile banking logins.
Branch Overlap:
In cities like Mumbai or Delhi, these banks may have branches very close to each other. Managing the closure of overlapping branches without losing local customers can be complex.
What Should Customers Expect?
While there is no active merger at this moment, if one is announced, customers should keep these points in mind:
Account Numbers:
Generally, account numbers at the anchor bank remain the same, while customers from the subsidiary bank receive new numbers and IFSC codes.
Fixed Deposits: Existing interest rates on fixed deposits are usually honored until the maturity date.
Loan Terms: The terms of existing home or car loans typically stay the same until the next reset date.
POSSIBLE REASONS:
Synergy Analysis: The True Value of a Merger
For BOI and Union Bank, the synergies represent the geographic and technical market reach of the banks. For a merger to be successful, $1 + $1 must equal to more than $2.
Geographic Complementarity
Western Presence:
The two banks are headquartered in the same city (Mumbai) and both have large-market areas in Maharashtra and Gujarat.
Geographic Coverage in the South:
The acquisition of Andhra Bank and Corporation Bank by Union Bank enables the bank to have a dominant geographic presence in the states of Telangana, Andhra Pradesh and Karnataka.
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- Branch Rationalization: Customers may see overlapping branches in close proximity being merged, reducing operational costs.
- Wider Access: A combined ATM and branch network would offer unparalleled reach, especially in rural and semi-urban India
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- No Disruption: As per standard procedure in PSB mergers, existing account numbers, cards, and chequebooks usually remain valid until a unified system is fully rolled out.
Global Access:
The Bank of India is a global gateway to provide credit to Indian corporates. With Union Bank having a retail banking presence in India, the new bank will be able to support all phases of the customer’s needs from savings to international trading through its “end to end” service offerings.
Finacle-Technology Synergies One of the most significant challenges for bank mergers is the core banking system (CBS) integration.
Both banks use Finacle by Infosys. When merging two banks with the same CBS, the data migration process is less complicated.
Additionally, customers will benefit from being able to access their mobile banking solution with minimal interruption during the transition, unlike the difficult integrations that occurred during the merger between PNB and OBC.
Impact on customers
The merger of UBI and BOI will have a direct impact on account holders, providing better services and improved returns. However, some additional paperwork may be required, such as updates to passbooks, checkbooks, IFSC codes and branch names. Customers’ deposits, savings, fixed deposits and loan terms, including home and car loans, will remain unchanged. Overall, the merger aims to create a stronger, more efficient banking experience for all customers.
For Account Holder
For Shareholders and Investors
- Stock Rally: Markets have already reacted positively to the news, with shares of both banks seeing upward momentum in early 2026.
- Valuation Boost: A larger balance sheet often leads to better credit ratings and lower cost of funds, potentially unlocking long-term value for investors.
Challenges Ahead
While the synergy in technology (Finacle) is a major plus, the merger will face hurdles:
- HR Integration: Harmonizing the seniority lists, promotions, and work cultures of two massive workforces (over 1.5 lakh combined employees) will be complex.
- Union Resistance: Bank employee unions have historically opposed mergers, citing fears of job cuts and branch closures. The government has consistently assured that there will be no job losses.
- Asset Quality Review: A thorough due diligence of the loan books is required to ensure no hidden bad loans derail the merged entity’s profitability.
