by Rajeev Pathak

Union bank of India, Mumbai

Introduction:

Once again, the most talked topic of Union Bank-Bank of India returns, after 20 years. Indian banking sector is abuzz with merger speculation. Recent media reports and market chatter suggest that preparations for a possible merger between Union Bank of India (UBI) and Bank of India (BoI) may be underway, with some even hinting at completion by the end of the current calendar year.

At this stage, it is important to underline that this is still a rumour, not an official announcement. Neither the Government of India nor the Reserve Bank of India (RBI) has issued a formal statement. Still, given India’s recent history of large-scale public sector bank (PSB) consolidation, the speculation has revived an important debate: Does India need another bank merger, and at what cost?

This article examines the rationale, advantages, risks, and stakeholder impact of a potential Union Bank–Bank of India merger, while also placing it in the broader context of India’s PSB consolidation journey.

Why Do Bank Mergers Keep Coming Back?

India’s public sector banking reforms over the last decade have been driven by three core objectives:

• Creating stronger balance sheets capable of supporting large credit growth
• Improving operational efficiency and reducing duplication
• Building globally competitive banks that can finance India’s expanding economy

After years of high NPAs, recapitalisation cycles, and governance challenges, consolidation was seen as a structural solution rather than a short-term fix.

A potential UBI–BoI merger fits neatly into this narrative. Both banks are mid-to-large PSBs with nationwide presence, overlapping branch networks, and comparable business profiles. A combined entity would immediately rank among India’s largest banks by assets, deposits, and advances.

Merger vs Amalgamation: Clearing the Confusion

The terms merger and amalgamation are often used interchangeably, but there is a subtle distinction.

• Merger generally refers to the combination of two or more entities where one survives and the other(s) lose their identity.
• Amalgamation is a broader legal process where all assets, liabilities, employees, and obligations of the merging entities are transferred to a new or existing entity.

In Indian banking practice, most PSB combinations are legally structured as amalgamations, even though the media casually labels them as mergers. In practical terms for customers and employees, both lead to full integration under a single bank.

A Quick Look at India’s PSB Consolidation History

India has already witnessed one of the largest bank consolidation exercises globally.

Key Milestones:

• 2017: State Bank of India merged its five associate banks and Bharatiya Mahila Bank
• 2019: Bank of Baroda absorbed Dena Bank and Vijaya Bank
• 2020: Mega consolidation reduced 27 PSBs to 12, including

Was it successful?

• Financially: Most merged banks showed improved capital adequacy and better loan growth over time
• Operationally: Initial disruption was followed by cost rationalisation
• Pain points: HR integration, technology migration, and cultural alignment took longer than expected

The experience suggests that consolidation can work — but only with strong execution.

Potential Advantages of a Union Bank–Bank of India Merger

Bank of India Star House, Mumbai

1. Stronger Balance Sheet

A merged entity would have a significantly larger capital base, enabling it to fund infrastructure, MSMEs, and large corporate projects more efficiently.

2. Cost Efficiency

Branch rationalisation, unified IT platforms, and shared back-office operations can reduce operating costs over the medium term.

3. Improved Competitive Position

With private banks and fintechs rapidly expanding, scale matters. A larger PSB can compete more effectively in digital banking, retail lending, and treasury operations.

4. Better Risk Diversification

A combined loan book across regions and sectors can help spread credit risk and stabilise earnings.

The Other Side: Risks and Disadvantages

1. Integration Challenges

Merging two large organisations is complex. Differences in internal culture, processes, and leadership styles can affect productivity during transition. But, in case of bank of India and Union Bank of India, this argument does not have much value as both the banks are Mumbai based and have significant presence in western India and other parts of the country.

2. Short-Term Disruption for Customers

Account number changes, IFSC migration, digital banking updates, and service delays are common in the initial phase of any bank merger.

3. Employee Anxiety

Although large-scale layoffs are rare in PSBs, employees often face role changes, transfers, and uncertainty, which can impact morale.

4. “Too Big to Manage” Risk

Very large banks can become operationally unwieldy if governance and accountability do not keep pace with size.

Impact on Key Stakeholders

Customers

Pros: Wider branch and ATM access, improved digital services, stronger bank stability
Cons: Temporary service disruption, confusion during system migration

Employees

Pros: Larger career opportunities within a bigger institution
Cons: Transfers, role rationalisation, short-term stress

Pensioners and Ex-Employees

Historically, pension and retirement benefits have been protected during PSB amalgamations. However, administrative delays and policy alignment often raise concerns during transition.

Government (Owner)

Pros: Fewer banks to capitalise, stronger entities, better governance oversight
Cons: Political and social responsibility during restructuring

Shareholders

In the short term, merger announcements can create volatility. Over the long run, value creation depends entirely on post-merger execution and profitability improvement.

Is Another PSB Merger Really Needed Now?

This is the most widely asked question.

Unlike earlier rounds of consolidation driven by crisis, Indian banks today are far healthier — NPAs are lower, capital ratios are stronger, and credit growth is robust. That raises a legitimate concern:

Should consolidation be pursued when the system is already stabilising?

Supporters argue that this is the best time to merge, when banks are strong enough to absorb transition shocks. Critics counter that organic growth and governance reforms may deliver better results than forced consolidation.

Conclusion:

At present, the Union Bank of India–Bank of India merger remains speculative. However, the discussion itself highlights India’s ongoing effort to balance scale, stability, and service quality in public sector banking.

If such a merger does move forward, its success will depend less on size and more on execution, transparency, and stakeholder communication. Past experience shows that consolidation is neither a magic solution nor a guaranteed failure — it is a tool whose effectiveness depends on how carefully it is used.

For now, investors, customers, and employees would be wise to wait for official confirmation while staying informed and prepared.