The Canara Bank will join Syndicate Bank; Union Bank of India, Andhra Bank and Corporation Bank will merge, and Indian Bank will merge with Allahabad Bank. Together, they will hold business worth Rs 55.8 lakh crore.

After the mega PSU bank consolidation, there will be 12 public sector banks in the system instead of 27, the Finance Minister said.

Announcing steps to empower the public sector banks, the Finance Minister said a board committee of nationalised banks will appraise the performance of general managers and higher positions.

For the first time, Chief Risk Offers will be recruited at market-linked compensation to attract best available talent.

The government further said PSU banks will be repositioned to take the economy to the $5-trillion mark, with wide ranging reforms, financially stronger and well-provisioned lenders, technology-driven banking, synergy and stronger governance.

The Finance Minister also said that loan recoveries have hit a recovery level of Rs. 1,21,076 crore. Gross non-performing assets (NPAs) - or bad loans - have come down from Rs. 8.65 lakh crore to Rs. 7.90 lakh crore, she added.

Analysts said the steps announced by the government are in the right direction. "This is a much awaited and a step in the right direction in order to consolidate the size of the banks and improve the efficiency. The move can also help expand the size of the economy," Deven Choksey of wealth management company KR Choksey Investment Managers told NDTV.

The announcements on bank consolidation comes a day after the Reserve Bank of India (RBI) said in its annual report that frauds in the banking system increased 74 per cent to Rs.71,543 crore in financial year 2018-19.

The RBI also said that the average lag between the date of occurrence of frauds and its detection by banks stood at 22 months.