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Stressed asset fund: a pill for India's bad loans? [Representational Image]: Commuters walk past a bank sign along a road in New Delhi, India, 25 November, 2015.Reuters

Canara Bank and Bank of India (BoI) will see three small public sector banks merged into each of it creating larger banking entities, moneycontrol.com reported, citing Reuters. The move will set the stage for the government's ambitious plan of consolidating India's 26 public sector banks to six big lenders.

Andhra Bank, Bank of Maharashtra and Vijaya Bank will merge with Bank of India enterprise, while Syndicate Bank, Indian Overseas Bank and UCO Bank are likely to be a part of a larger Canara Bank.

According to an official, Union Bank is expected to take up Central Bank and Dena Bank into its fold, said agency sources.

The other four big lenders to emerge out of India's consolidation exercise would be State Bank of India, Punjab National Bank, Union Bank and Bank of Baroda.

P.B. Sharma, executive director of Bank of India, told CNBC TV18 that he was not aware of any such clearly laid out plan or information. However, if the merger takes place, it would be a greater challenge integrating human resources than any other issue.

He noted that with computerisation of systems, mergers are easier these days, but cautioned that a merger for the sake of merger will be chaotic.

Shares of Canara Bank traded at Rs. 212 on Wednesday, 0.26 percent lower from their previous close on the BSE. Bank of India shares were trading at 0.57 percent lower at Rs. 95.60, while Union Bank of India shares traded 0.80 percent lower at Rs.124.70.