Sitharaman said this will bring the total number of PSBs in India to 12.
Revealing the thought process behind the mergers, Sitharaman said these weren't announced simply for the sake of merging, but after duly considering the synergies the banks will have.
She also announced a series of governance reforms for government banks in the hope that the capital infused by the government into the lenders would result in "stronger banks". The government is also of the belief that these banking reforms are essential for the economy to pick up pace.
He alleged the merger of public sector banks would mean closure of six banks.
"We want banks with strong national presence and enhanced risk appetite".
The United Forum of Bank Unions (UFBU), the umbrella body of nine banking sector trade unions, has issued the protest call.
"Canara Bank with (merge) Syndicate Bank, they will be the fourth largest Public Sector Bank with business of Rs 15.20 lakh crores", he added.
The second will consist of Union Bank, Andhra Bank and Corporation Bank. The combined advances base of the new bank will be Rs 6.39 lakh crore and the deposit base will stand at Rs 8.2 lakh crore.
The merger between Union Bank of India, Andhra Bank and Corporation Bank shall become the fifth largest public sector bank now whereas Indian Bank amalgamation with Allahabad Bank will be the seventh-largest Public Sector Bank with a business amounting to Rs 8.08 lakh crores.
Most of these banks, except the big ones, have a regional focus and have strongholds in respective areas.
Kumar said the merger will benefits employees working in small banks. Sitharaman also announced a rough break up of capital infusion intended for individual banks out of the Rs 70,000 crore announced in the 2019 Union Budget. "Rs 55,250 crore capital for credit growth and regulatory compliance to support the economy", she said. Owing to the provisions towards bad loans, there was a net loss of about Rs 66,000 crore. The government has claimed that there were no retrenchments and better rationalisation of operations through the Bank of Baroda merger.
The UCO Bank will get Rs 2,100 crore, the United Bank of India Rs 1,600 crore and the Punjab & Sind Bank Rs 750 crore. "The consolidation of public sector banks will give them scale", Sitharaman said.
Last year, the government helped facilitate a merger of Dena Bank and Vijaya Bank with Bank of Baroda, creating the third-largest bank by loans in the country. In 2018, the government made a decision to merge the Bank of Baroda with the Vijaya Bank and the Dena Bank.