The cabinet on Wednesday gave an "in-principle" approval for the consolidation of state-run banks by merging some of the lenders, television channels reported.
Finance Minister Arun Jaitley is due to brief media on the outcome of the cabinet meeting at 1500 IST (0930 GMT), a government spokesman said, without giving details.
The Indian government owns majority stakes in 21 lenders, which account for more than two-thirds of banking assets in Asia`s third-biggest economy.
But these banks also account for the lion`s share of more than $150 billion in sour assets plaguing the sector. The banks also need billions of dollars in new capital by March 2019 to meet global Basel III banking rules.
Speculation has grown in recent months that Prime Minister Narendra Modi`s government would push ahead with plans to consolidate the sector, part of broader banking sector reforms aimed at kick-starting credit growth and supporting faster economic expansion.
State-run banks gained on the reports. Bank of India Ltd climbed 2.7 percent, Punjab National Bank advanced 2.3 percent while Canara Bank rose 1.9 percent.
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